[Options Premium] Think Globally, Bank Locally
Here's what Strazza had to say about Regional Banks (and their ETF $KRE in particular), and their place in the big picture:
With the sensitivity this group of stocks holds with economic growth and interest rates, it goes without saying that this breakout is an integral part of our bullish macro thesis. As long as we’re above 65 we want to own KRE with a 2-4 month target 0f 89.
And this is the chart to which he was referring:
From an options trading perspective, I'm loving that volatility in these options is pretty cheap right now:
Additionally, the recent pullback is offering us a nice reward-to-risk situation in which to get long without having to accept too much risk on the downside.
In situations like this, I like to keep it simple with straight long calls. And given the time horizon in which we expect $KRE to make a run our $89 price target, I like September options for this play.
Here's the Play:
I like September 75 calls for around $2.50 per contract. This debit is the most we can lose on the trade. These calls currently sport a 30 delta, so we'll get good bang for the buck if the move we're looking for materializes.
As mentioned, the risk management level is not far away. If we see a $KRE close below $64.00 per share at any time during our hold, that will be my signal that this ETF is not ready to run yet and it's time to exit the trade and protect our capital.
On the upside, as is often the case with long call trades, I'll look to close half of my position if the calls have doubled in value. This allows me to take all of my original risk capital out of the trade, while leaving me with theoretically unlimited potential upside on the remaining half position. And if $KRE makes a run to $89, there should be plenty of opportunity to pull some more money out of this trade and deposit my winnings in my favorite local regional bank!
Subscribers with questions on this trade, please send them here.
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!