On today's Flow Show, Steve Strazza and I discussed the two different markets we are each experiencing. He's experiencing one of great breakouts and follow-through. I'm experiencing one of frustration.
Same stock market, different results. That is information. We get into it.
This bull market appears to be on the verge of another leg higher and it might be led by the financials. We both liked the idea of finding alpha down the cap scale in smaller regional banks to participate.
Here's a daily chart of U.S. Bancorp $USB:
Today, the stock is printing fresh 52-week highs.
However, it should be noted that U.S. Bancorp announces earnings before the market opens tomorrow. This introduces binary risk that we need to be aware of and this will affect my position sizing (hint: trading smaller than I normally would).
But we're not going to let earnings keep us away. We feel it could be just the catalyst this stock needs to follow through on this breakout and make a run at $60 per share, or higher.
Here's the Play:
I like buying $USB March 50 calls for approximately $2.30 per contract. This premium I pay today is the most I can lose. And if $USB has a disaster of a reaction to tomorrow's earnings report, we could likely lose 100% of this premium. So I'm trading it small.
Following earnings, if we see $USB with a closing price below $46 per share at any time, that's my signal that I'm wrong or early and I'll close the trade and take the L.
In the meantime, if the breakout follows through to the upside, I'll look to sell half of my position if/when $USB touches $60 per share to book some profits. Then I'll ride the rest to see what happens.
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.
Sean McLaughlin | Chief Options Strategist, All Star Charts
