In today's Flow Show, Steve Strazza said: "Bull Markets give us options."
And he's right.
There is an embarrassment of opportunities right now. And he came to the show with a list of ideas that we reviewed.
You can watch the full episode here:
There were two trades I wanted to put on that were discussed during the show.
Today, I'm choosing to enter the Gamestop $GME idea.
So here's the $GME chart:
Now, forget everything you ever learned in technical analysis school. And you can certainly throw your fundamental texts in the garbage. None of that will help you with this stock. It doesn't follow the rules or even logic and certainly not common sense.
This is and will likely forever be a story stock. A meme stock. Nothing else.
And right now, $GME is showing signs of waking up again. With options premium in out-of-the-money calls insane, it sets up a nice opportunity for us to leverage that premium to our advantage.
Here's the Play:
I like buying a $GME January 30/40 Bull Call Spread for approximately $1.35 net debit. This means I'll be long the Jan 30 calls and short an equal amount of the 40 calls. The debit I pay today is the most I can lose in this trade:
Since this stock doesn't follow the rules, I'm not going to either.
Regarding risk management, this either wins or it's a zero. So I'm sizing my position in a way that if I lose 100% of my premium invested, it'll be a minor hit to my portfolio. No sweat.
And I'm going to leave a resting GTC limit order to sell this spread for a profit at $8.00. Once I've captured 80% of the potential full value of the spread (the distance between the strikes), that will be enough for me. As we know, this winner can turn against us on a dime.
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
