A strategy idea for options trading investors.
Our indicators continue to give neutral to bearish readings, unchanged from last week. The 200-day Moving Averages Index remains in a primary bearish trend, the Cumulative Volume Index is below its 200-day moving average, and the Advance/Decline Index is below its 50-day moving average. And not surprisingly given the market action over the past few weeks, volatility indexes are beginning to trend higher.
Recommended Fast Options Trade: Coventry Health Care (NYSE: CVH)
CVH has been in a steady uptrend since last October. It recently broke above resistance at about $35 and should be a market leader if stocks can mount a rally. Here is the best way to play more strength in Coventry Health Care …
Buy the CVH Aug 37 Call up to $1.30 ($130 per contract).
After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $38.20. That should give you an option price of about $2.50, for a 92% profit.
Close this position and cut losses if the stock closes below $34.30, when the option price should be about 80 cents. The stock is currently trading at $35.55. The computer-simulated probability of this option hitting its target price is 27%.
Recommended Fast Options Trade: Starwood Hotels (NYSE: HOT)
HOT broke below its 200-day moving average support earlier this month. It has snapped back over the past week but looks like it will continue moving lower, and it could fall very quickly if it closes below $52. Here is the best way to play more weakness in Starwood Hotels …
Buy the HOT Aug 50 Put up to $1.65 ($165 per contract).
After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $48.60. That should give you an option price of about $3.80, for a 130% profit.
Close this position and cut losses if the stock closes above $56.70, when the option price should be about $1. The stock is currently trading at $53.25. The computer-simulated probability of this option hitting its target price is 17%.
** All of our short-term recommendations can be taken for up to three days after they are recommended. Make sure the stock and option prices are close to where they were when we made the recommendation. If after three days you still have not gotten the position filled, cancel the order and wait for our new recommendations, as the profit probabilities may no longer be valid.
Action Taken on Current Position: Teucrium Corn Fund (NYSE: CORN)
The CORN Jul 44-40 Put Credit Spread was closed Thursday when the stock traded below its stop price.
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.
