The first month of 2013 is already halfway over and the market has shown early signs of a bullish nature. But earnings have just begun and there is a lot of uncertainty that lies ahead including the fiscal crisis. Here is a trade idea that is bullish in nature but can still profit even if the stock moves lower.
Sina Corp. (NASDAQ:SINA) Put Credit Spread
The trade: Sell February 47.5/50 Put Credit Spread (selling the February 50 put and buying the February 47.5 put) for 45 cents or better.
The strategy: The maximum potential profit for this trade is 45 cents if SINA is trading above $50 at February expiration. The maximum loss is $2.05 ($2.50 – 45 cents) if SINA is trading below $47.50 at February expiration. Breakeven is $49.55 at expiration based on a 45-cent credit.
The rationale: SINA is an online media company in the People’s Republic of China and other Chinese communities. Up until recently there has been some doubt about China’s economy recovering, but recent reports have pointed to a modest upswing taking place. Besides the good news on China’s economy, China’s internet population is expected to increase to about 800 million users by 2015.
But really this trade idea is about what is happening now. The stock has been in an uptrend since early December, setting higher pivot highs and higher pivot lows. In the last couple of days the stock has pulled back some and has traded close to the daily 200 simple moving average. Besides the moving average supplying some support, the stock has previous price levels at $50 and $52, which could act as support and keep the stock from moving lower and threatening the credit spread. Three levels of protection are always better than one.
If you are interested in more of my trade ideas please visit http://markettaker.com/mtm_group_coaching/
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.