[Options] I'm on the Dow Train!

Sean McLaughlin
August 26, 2020

Salesforce, Amgen, and Honeywell were all welcomed into the Dow Jones Industrial Industrial average this week. And all three are being greeted by enthusiastic investors. (Especially Salesforce $CRM!)

While the first two names are in sexy industries, don't sleep on Honeywell $HON. Here's what JC said in a recent post on the new Dow additions:

Here’s a chart of Honeywell, which I’m not sold on yet. I think it does break out, but I think this is only something to be long if we’re above 165. Below that and there is too much opportunity cost, I believe.

And the chart to which he was referring:

Well, today, we got our move above $165 and that's good enough for me -- especially with volatility being priced so cheap in $HON options right now:

This makes it easy to participate on the upside.

Here's the Play:

I'm buying $HON January 185-strike calls for $4.00 or cheaper. This is a defined risk trade. The most I can lose is this premium paid for the options. I chose the 185 strike both because it sports a 25 delta (my sweet spot for leverage and affordability) and because it has a good amount of open interest.

My line in the sand on this trade is $155. If $HON trades below this level during my hold, I'll attempt to close the position down to limit my loss.

But if it takes off like we think it will, I'll sell half of my position when I can do so for double what I paid (at approximately $8.00 per contract), and then attempt to ride the rest into the month of January. At which point, if $HON is trading below $185/sh, I'll exit the position entirely. If the calls are (hopefully) in-the-money ($HON trading above $185), then I'll hold on to the position as long as I can, until any nearby support is broken.

If you have any questions on this trade, please send them here.

~ @chicagosean

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