New Unemployment Claims and Retail Stocks Dear Savio, The weekly unemployment claims number came in this morning and brought the total jobs lost during the COVID-19 outbreak to over 30 million. Most analysts were expecting a negative report, so the bad news wasn't completely surprising, but the severity of the bad news was a little worse than had been anticipated. Stocks are lower following the new jobless claims, which seems worrisome on the surface, however, as we have pointed out many times in weeks prior to the COVID-19 crisis, the weekly claims data is very "noisy" and subject to frequent revisions. We don't see this report as a harbinger of another swift decline. In fact, today's brief decline is a chance for us to use some of the market's caution to roll out our trade on Nike (NKE) before retail stocks head higher again. Most of the stocks in this group are down today, which will allow us to buy back our May 15 calls for a nice profit. We recommend you… Take profits and 'buy to close' the NKE May 15th $90 Covered Call (NKE200515C00090000) at current market prices. Our goal in this case is to sell another call with a later expiration and a higher strike. The market's bullishness over the last two weeks has been very strong, and this strategy allows us to compound our option income and lower the gains given up if we're called out of the long stock position. We're recommending you… 'Sell to open' the NKE May 29th $93 Covered Call (NKE200529C00093000) for a minimum price of $0.90. 
We don't expect most retail firms to hit their prior highs again this year, so moving our strike price to $93 gives us a lot more upside potential but is still low enough to offer an attractive premium on the calls. Here's How the Trade Can Work Out…
Instant income: With this covered call, we plan to collect an instant income payment of at least $90 per contract.
Call expires out of the money: If NKE's stock price remains below our $93 strike price at expiration on May 29, the calls will expire worthless, allowing us to keep the $90 per contract we receive for selling this option. That's a return of 0.91% in just 29 days, or an annualized return of 11.45%.
In this case, we will still own the stock shares and can continue writing covered calls against them for further income.
Call expires in the money: If NKE's stock price is above our strike price at expiration, you will have 100 shares of NKE "called away" from you at $93 per share.
Having the shares called away from us will then allow us to start selling put writes against the stock in the future for additional income. You will also get to keep the $90 per contract you earned by opening this trade.
If you do not want to have your shares called away from you, you will need to "buy back to close" the call before expiration on May 15. We'll keep you posted as the trade progresses.
| Nike (NKE) common stock was trading for approximately $87.32 per share at the time of this alert. Long-Term Focused Strategic Positions: Right now, we only recommend selling the following covered calls if you are already holding the underlying stock. We are not recommending our long stock positions for new entries at this time. If you haven’t already entered the following and can still get in for a price at, or better than, our recommended minimum/maximum, we still recommend entering: - Covered Call: (Short) BLL June 19th $77.50 Covered Call (BLL200619C00077500) for a minimum of $0.60.
- Covered Call: (Short) CSCO May 8th $44 Covered Call (CSCO200508C00044000) for a minimum of $0.40.
- Covered Call: (Short) KO May 15th $50 Covered Call (KO200515C00050000) for a minimum of $0.30.
- Put Write: (Short) EXR May 15th $95 Put Write (EXR200515P00095000) for a minimum of $3.80.
- Put Write: (Short) MSFT May 15th $172.50 Put Write (MSFT200515P00172500) for a minimum of $5.00.
We are still holding the following strategic trades, but either the current value of the short option or the price action of the stock itself doesn't warrant entering a new trade at this time. If you haven't already entered these trades, we recommend waiting until further notice before opening a new position: - Covered Stock: Ball Corporation (BLL) common stock -- part of the BLL covered call position.
- Covered Stock: Cisco Systems (CSCO) common stock -- part of the CSCO covered call position.
- Covered Stock: Coca-Cola Company (KO) common stock -- part of the KO covered call position.
- Covered Stock: Nike (NKE) common stock -- part of the NKE covered call position.
- Long Stock: Walt Disney Company (DIS) common stock for a maximum of $150.00.
- Short Stock: Wynn Resorts (WYNN) common stock for a minimum of $55.00.
If put-writes and buy-writes are new strategies for you, be sure to check out our Resources page for more information. For more on these trades, be sure to attend our next weekly webinar Wednesday at 8 p.m. ET. Sincerely, 
John Jagerson and Wade Hansen
Editors, Strategic Trader
| 
Comments
Post a Comment