New Trade Alert for (DB)
Deutsche Bank Buy January $10 Call @$5.00 or less
Risk Rating: 2.5 (1 = lowest 5 = highest)
Above Break Even Probability: 46%
Max Loss Probability: 8%
Brexit Bank Base Buy
European demise has been greatly exaggerated. The FTSE index in London just posted year plus highs and the German market measure jumped 20% since the June low.
The fear factor has fallen with the EuroCurrency now back to pre Brexit levels.
Bank behemoth Deutsche Bank has been beaten down 40% in 2016 to put reward to risk in favor of Bulls at these discounted distressed levels.
Compare the comeback in EWG the German iShares ETF to distress in DB down 55% in the last 52 weeks.
The fall below 2009 FINANCIAL CRISIS $20 lows dove to a bottom base at $13 in June and August. Bullish divergence with new extreme lows at $12.48 and no new highs in volatility can be a sign sellers have tired.
The recent two month DB range from $13 to $15 sets up for a run to fill in the price gap and an initial measured move to $17 per share.
Above that the target stands at $20 which was the old seven year extreme bottom base. A move back to $20 is 35% above the current DB price.
A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid. An option instead of buying the shares also has greater staying power for long term trend development.
The January option has five 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 stock itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A Deutsche Bank long call option can provide the staying power in a potential bullish 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 only modest directional moves.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options is 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 DB at $14.50, for example, an In The Money $10.00 strike option currently has $4.50 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 DB January $10 Call at $5.00 or less. A close in the stock below $10 on a weekly basis or the loss of half of the option premium could trigger an exit.
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 on the $10 strike call is 87%.
The January option has five months for bullish development. This option is like being long the stock from $10, lower than the 20 year low, with completely limited risk.
The maximum loss is limited to the $500 or less paid per option contract, with a stop at half of the premium paid to lower dollar exposure . The upside, on the other hand, is unlimited.
The DB option trade break even is $15.00 or less at expiration ($10 strike plus $5.00 or less option premium).
If shares move to the $20 target this option would be worth $10.00 for a 100% return on investment.