[Options] Reliance

Sean McLaughlin
March 18, 2024

On today's Flow Show, me and Steve Strazza put our heads together to follow the wave into the Steel sector.

Sector trends are showing us where capital is flowing and that led us to a trade idea in steel manufacturing company Reliance Inc $RS.

Here's the chart highlighting a high consolidation that often portends to rapid near term price acceleration:

For those of us who are comfortable with risking higher dollar amounts in trades, I'd be a straight buyer of the September 350 calls.

But I prefer keeping my costs a little lower per unit of risk, so I'll be employing a call spread here to express our bullish opinion.

Here's the Play:

I like buying a $RS September 350/400 Bull Call Spread for less than $11.00. This means I'll be long the 350 calls and short an equal amount of 400 calls and this debit I pay today is the absolute most I can lose in this trade:

But I'll look to stop out of this trade to protect what's left of my premium if or when either of the following instances occur:

  • If $RS sees a closing price below 310, that's my signal that we're wrong about the trend and I'll want out.
  • If the value of our spread loses 50%, that is my signal that I'm wrong or early. Either way, I'll want out.

If the stock follows through on the upside like we think it can, I'll look to hold the spread until $RS reaches $400 per share. Since our upside is capped above $400 per share, I'll look to exit with profits if/when that level gets hit.

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

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @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: 323-421-7910.

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