Volatility has seized T-Mobile US Inc (NASDAQ:TMUS) shares following yesterday’s earnings release. And as any tactical trader will attest, elevated activity brings opportunity in its wings. TMUS stock is down 0.3% as of this writing, but it didn’t begin today’s trading session in the red. Quite the contrary, T-Mobile jumped right out of the gate. And then sellers attacked.
Before yesterday’s release, TMUS shares were up a modest 6% year-to-date. The telecommunications company was actually doing much better until June arrived and delivered a nasty haircut. The shave carried T-Mobile below its 50-day and 20-day moving averages officially reversing the short-term and intermediate-term trends.
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Since then, distribution days have multiplied, and the RSI indicator has entered bearish territory. Today’s gap-n-crap illustrates the difficulty of pulling out of a tailspin once it’s in motion.
Recovery attempts, even those driven by better-than-expected earnings, are always suspect due to the heap of overhead resistance.
Chart watchers certainly shouldn’t find today’s reversal point surprising. The opening gap delivered TMUS shares directly into the falling 50-day moving average. Eager sellers rushed in, and it took all of 30 minutes to fill the gap.
With buyers soundly rejected, the dominance of T-Mobile’s downtrend was reiterated this morning. Until the stock can establish itself back above the 50-day moving average ($64), we have to give sellers the benefit of the doubt here.
TMUS Stock Options
To capitalize on continued weakness consider initiating bear call spreads. Sell the Aug $62.50/$65 bear call for 73 cents or better. As long as TMUS sits below $62.50 at expiration, you will pocket the max reward of 73 cents.
The cost (and risk) of the trade is only $1.77 ($177 per contract), so you’re looking at a potential 41% return on investment.
If buyers wrest control of the stock you can minimize the loss by exiting on a break above $65.
As of this writing, Tyler Craig held neutral option positions in the Russell 2000 Index. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
