[Options] A Sleepy Selection

Sean McLaughlin
January 6, 2021

JC and I were chatting this morning about things we're seeing in the markets. The big thing we're observing is the breakout in financials. And a breakout in financials is rarely something one observes in a bear market, or a bull market that is in the process of "topping."

While it might be wise to wait for pullbacks in the financials space before entering any new trades there, we were able to take some risk off in a bullish calls trade in Morgan Stanley $MS we've been in since December 11.

But one stock that has JC's attention has been lulling investors to sleep over the past six months. And this is kind of ironic since one of their main product lines is Trojan -- which promotes anything but sleep ;)

Of course, over the long run, there is nothing sleepy about this performance of Church & Dwight $CHD:

There are a lot of happy long term investors here.

Zooming into the daily chart which is more my time horizon, we have a pretty clearly defined risk level to lean against at $83. And with volatility pretty tame in these options (no surprise given the sleepy past 6 months), this gives us the leeway to go a little farther out in time without spending too much money to do so:

Here's the Play:

I like $CHD August 100 calls here for less than $1.90 per contract. Clean and simple.

Hopefully we can hold this well into the summer as the long term trend resumes its non-stop march higher. But we're not just blind bulls here. If $CHD closes below $83 per share at any time during our hold, we'll shut the trade down and take a nap along with everyone else here. CHD will be whispering loud and clear: "Not tonight, honey."

Of course, if the up trend resumes, I'll look to close half of the position down at a double (around $3.80-$4.00 per contract) in order to take all of my original risk out of the trade. Then I'll be able to more comfortably hold the rest of the position -- come what may -- all the way into the summer. Hopefully we'll be able to stretch into some big gains.

All Star Options subscribers with questions on this trade can send them here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free!

 

 

 

 

 

 

Filed Under: