Options for stock investors. A better way to trade.

New Trade Alert June 1st – Kroger TIME

New Trade Alert for KROGER

Buy KR January 2019 $25 Call @$6.75 or less

 

YES Jan 2019 is only $100 more expensive than Jan 2018

 


Risk Rating: 2.75     (1 = lowest   5 = highest)

Above Break Even Probability: 47%

Max Loss Probability: 30%


 

KROGER TIME 

 

Another market comeback has stock sellers shrugging off losses trying to pick the top turn.  Every selloff since 2009 has had a full recovery rally to post new higher highs.

 

MOMENTUM is a powerful force… 

 

Not even half way through the year though the S&P has posted more new ALL TIME HIGHS than seen in 2016.

 

 

 

Some stocks have been subdued with your local Kroger grocer slip sliding because of food price deflation.  This has hurt margins as food prices plummet.  

 

Inflation is starting to perk up to help KR profitability.

 

Over the last two years Kroger is down the distance the broad market barometer has bounced.

 

KR has killed it …up 175% in the last five years even with a pullback from the $43 top.  Midpoint support for the last ten years stands right below at $27 to put reward to risk in favor of the bulls.

 

The one year chart shows a trading channel between $28 and $30 since March.  Bouncing along this bottom has bullish divergence with new price lows but no new highs in volatility.  

 

 

A breakout targets $32 then the $36 halfway mark of the 2015 top to the $28 March bottom.

 


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.

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 KROGER 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 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 KR trading at $30.00, for example, an In The Money $25.00 strike option currently has $5.00 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 – even if the move occurs in the next few weeks.  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 KR January 2019 $25.00 Call at $6.75 or less. A loss of half of the option premium would trigger an exit.

 

The $25 strike is below the 52 week low…

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.

This option also behaves much like the underlying stock with a much less money tied up in the investment. The option Delta is 80%.

The January 2019 option has ONE YEAR AND seven months plus for bullish development.

The maximum loss is limited to the $675 or less paid per option contract. A stop loss is placed at half of the premium paid to lessen dollar exposure.

 

 

The upside, on the other hand, is unlimited.

The KR option trade break even is $31.75 at expiration ($25.00 strike plus $6.75 or less option premium). That is around $1.50 above the current price.

 

If shares just get back to the modest $36 midpoint price pivot, the option would be worth $11.00 for a 70% return on

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