Place order to sell the EWZ January $30 Call at $12.50 or better for 52% profit in eight months
ORIGINAL May 4th TRADE ALERT BELOW filled at $8.25
New Trade Alert for (EWZ)
Buy EWZ iShares Brazil ETF January $30 Call @$8.50 or less
Risk Rating: 3.0 (1 = lowest 5 = highest)
Above Break Even Probability: 48%
Max Loss Probability: 17%
The broad market S&P has not made new highs in two months plus compared to the TECH trend straight up gaining 15% so far in 2017.
Global markets have appreciated with big jumps in Germany and China in this not so New Year.
Comparing the last six months Brazil is behind… with a 5% positive push versus the S&P broad market barometer plus 15%.
The iShares Brazil ETF has found a decade bottom at $20 with the $60 level the larger target on a rebound to the midpoint resistance.
EWZ traded between $36 and $38 for months targeting the $40 top on a buying breakout. The $44 mark 19% higher is the measured move target on a retracement recovery
This is an opportunity to use the power of options for a capital preserving stock substitution strategy.
The January option has almost six months for Bullish development.
An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the ETF share cost itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A iShares Brazil EWZ long call option can provide the staying power in a potential larger trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from just modest directional moves.
Any trade has a fifty/fifty chance of success. Buying In The Money options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options are more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With EWZ trading at $37.25, for example, an In The Money $30 strike call option currently has $7.25 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — at least three to six months for the trade to develop. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the EWZ January $30 Call at $8.50 or less.
Place a stop loss at $4.00 to risk half of the option premium to reduce dollar exposure.
Notice the $30 strike has the right to be long from a discounted level not seen since July.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with a much less money tied up in the investment. The Delta of this $30 strike is 85%.
The January option has nearly six months of time for bullish development.
The maximum loss is limited to the $8.50 or less paid per option contract, with stop loss at half premium paid. The upside, on the other hand, is unlimited.
The EWZ option trade break even is $38.50 at expiration ($30 strike plus $8.50 or less option premium). That is about one dollar above the current ETF price.
A push above $40 targets $44 which would put the option value at $14.00 for a 66% return.