Trading a Range - CRSP Is a Money Maker
Take advantage of the opportunities presented by stocks trading in a range.
It has been a great week for a number of stocks and markets are continuing to climb higher. My long-term portfolio has never looked better!
There are some stocks that are still consolidating and with the sideways action comes opportunities to trade.
A lot of recent focus has been on breakout trades and for good reason. Markets have been breaking out!
But my favorite way to trade is taking advantage of a stock that is in a clean range.
CRSP is giving us that exact opportunity.
Shares have been trading between 60.71 and 66.97, a solid 10% range that has been holding since mid-December of last year.
The opportunities this presents are many, including buying and selling options, trading rejections and bounces, and getting in on breakouts higher and lower.
The only thing missing currently is higher levels of volatility which would add some juice to options premiums. But levels are high enough!
A quick note, here’s an oversimplified but useful definition of implied volatility: IV is the expected movement of a stock’s price.
If a stock is expected to move more rapidly, IV increases and so do the prices of options contracts.
If you are selling options and collecting the premium, you enjoy a higher percentage when IV is elevated.
This is ideal for trading a range.
At the top, which CRSP is nearing, you can sell covered calls and collect premiums for doing so.
The trade off is you are capping the maximum amount you can gain if shares move higher.
I like the idea of being able to capture upside, collect cash, and in exchange for only missing out on part of the upside if the stock takes off.
In some cases, you can collect 1-2% every couple of weeks.
Now imagine doing this repeatedly, collecting cash week after week.
This is why I like this strategy!
The key here is you need to own 100 shares to be able to sell covered calls. This is to cover you if the shares move above the strike price of the calls you sold.
You can sell one options contract for every 100 shares you own.
If you don’t own shares but want to take advantage of trading a range, you have options too (pun intended).
If CRSP trades down to the bottom of the range you can buy shares, or you can sell a cash secured put (CSP).
This requires you to have enough cash on hand to cover 100 shares at the strike for the puts you sell but does not require you to own any stock ahead of time.
This weekend I will be getting into the details around how I sell options for a stock that is trading in a range and will tackle both covered calls and CSPs.
This is a great strategy for a more hands off approach to options trading that also allows you to collect cash up front.
I’ll dive into all of it and will be including new trade ideas for upgraded subscribers.
CRSP and DKNG are at the top of the list!
I’ve also got my eyes on MARA, PLTR, SBUX, META (although I might have missed this one), XOM, and Z for potential next trades.
This year is off to a hot start! I am looking forward to seeing how markets digest this week’s FOMC meeting and Powell’s comments.
Thank you again for your support of A Trader’s Education which is also off to a hot start! I could not do this without you.
-Nate
When you are ready for TrendSpider, please use the link below to sign up!
Anchored VWAP is just one of the many top notch features TS provides.
Check out TrendSpider and let me know if you have any questions.
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
Excellent ! Love trading Covered calls and Cash Secure puts! Looking forward to them