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While my indicators have been more neutral than bullish, I do see some bright spots in the current market. As far as earnings go, the reports from Citigroup Inc (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) last week looked pretty good, although both stocks did fall on their respective announcements.
I am still bullish on the financials, as I think they are one of the most undervalued sectors of the economy. The euro is still very undervalued and, when it starts to move up, that should really help the European bank stocks as well. For both of those reasons, I’m opting for a bullish position on Deutsche Bank AG (USA) (NYSE:DB) — a put credit spread:
Using a spread order, sell to open the DB Nov. 17th $16 put and buy to open the DB Nov. 17th $13 put for a net credit of about $0.27.
Note: There are several November expirations available for DB options. Be sure you are opening the monthly options that expire on Friday, Nov. 17, 2017.
A put credit spread involves writing (selling to open) an option and simultaneously purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.
For these trades, you want the underlying share price to stay above the upper strike price of the spread. In this case, we want DB to stay above $16 through the Nov. 17 expiration. And DB has a lot of support at that $16 price level going back a full year. That means the odds are in our favor here.
Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.