Northrop Grumman Corporation (NYSE:NOC) has had an impressive ascending trend as shown in the weekly chart below. These are the types of stocks that I like to engage with longer-term trades. They usually end up yielding headache-free profits for the most part.
Click to Enlarge When dealing with reliable long-term trends, I don’t bother chasing price targets. Instead, I sell risk against pivot levels. I am essentially selling someone a lotto ticket that eventually will be a loser for them.
In this case, I will use the NOC options market to establish a bullish position for the next few months. I structure it so that I don’t have to be surgically accurate in my entry points. Options are a great way to leverage great trends with little out-of-pocket risk.
NOC Stock Trade Idea
The Trade: Sell NOC Aug $185 put. This is a bullish trade for which I collect $1.50 to open. By selling naked puts, I am committing to owning the stock at my strike sold if price falls through it. The 22% price buffer from current levels give me a 90%-plus theoretical chance of success. I could also buy a few sacrifice shorter term puts to help me temporarily cover the possible worst case crash scenario.
Selling naked puts is not suited for all traders. Luckily, I can modify this trade to be friendlier to less aggressive risk tastes and account sizes.
The Alternate: Sell NOC Aug $205/200 credit put spread. This is also a bullish trade for which I collect 50 cents to open. The yield if I win would be 13% on money risked. The 14% buffer gives me a 90% theoretical chance of success. This trade will need to survive earnings reports, so that would be a temporary worry.
Since I am not required to hold my trades open through expiration, these longer-dated trades are easy to manage. I can close or move them for partial gains or losses if my thesis changes.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.