[Options] The Speculative Flavor of China With a Hint of British Moderation

Sean McLaughlin
June 14, 2023

We may have stumbled upon an underpriced opportunity, one that must be off the radar of most traders because it's practically jumping off the screen at us.

It's an international banking name with speculative exposure to China, yet the DNA of old-money British aristocrats.

And we're breaking out today!

Here's a recent chart of HSBC Holdings PLC $HSBC:

What you don't see on this chart is $HSBC breaking out above that resistance level today. As I type this, the stock traded as high as $39.14.

But what's got me really excited is January 40 strike options can currently be purchased for under $2.00 per contract. This feels like an unreal opportunity to position into a breakout that few are pricing in.

For more color, he's what Steve Strazza had to say about $HSBC in a recent International Hall of Famers report:

The stock has been consolidating in a well-defined range since January last year.

HSBC is currently pressing against the top of this range as it threatens to take out a shelf of former highs.

This is the buyers’ third attempt to break above this critical resistance level. As tests are becoming more and more frequent, it’s only a matter of time until buyers take control.

As for the relative trend, the stock has been outperforming the broader market for some time now, which is not something many bank stocks can say.

As long as we are above 38.50, we want to be long with a target of 47 over the next 1-3 months.

While Steve thinks the move happens in a short timeframe, since the calls are so cheap, we can afford to buy more time for the thesis to play out, therefore this is why I'm choosing January options.

Here's the Play:

I like buying $HSBC January 40 calls for $2.00 or less. This premium I pay is the most I can lose. However, if the stock can't hold above $38, then I'll look to exit my position following any close below that level to eliminate the risk of any further losses to my trading capital.

In the meantime, I'll look to sell half of my calls at double what I pay today to take my original risk off the table if the stock follows through on this breakout, giving me a #FreeRide on the rest into January for the potential of uncapped gains.

Simple. Just the way I like it.

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

ASO subscribers who missed last week’s video Jam Session where we reviewed activity in our options portfolio from the past week can catch it here.

~ @OptionsSean

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! Or give us a call to learn more: 323-421-7991.

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