Investors Are Watching Central Bankers – Here's What We'll Do Dear Savio, The major indexes were pulling back a little in the pre-market today as traders worried about a potential taper in the European Central Bank's (ECB) monetary stimulus. Like the Fed, here in the U.S., the ECB is pouring money into the European banking system in the form of bond purchases to keep the cost of capital low. However, an interview with one of the voting members of the ECB yesterday put traders on edge after a taper of that bond-purchasing program was mentioned. We suspect that a "taper" will be the new preoccupation for traders (along with inflation), but if market fundamentals remain strong, then talking about a taper is unlikely to result in any major reversals. Our analysis is provisional based on the information we have right now. If the warnings from the central banks about a taper become more serious, we may want to take alternative action. The last time we saw a real "panic" about a taper in May of 2013, the S&P 500 dropped nearly 6%. Although the issue turned out to be temporary in 2013, we should remain flexible about our outlook. We have used Trex Co. Inc. (TREX) in the past to take advantage of demand for new home construction, home improvement, and construction repairs while interest rates are low. So, here's what we'll do… 'Sell to open' the TREX October 15, 2021 $100 Put Write (TREX211015P00100000) for a minimum price of $2.00.  Based on the trend of earnings reports we are seeing in the sector (and especially among homebuilders), we feel that the group is undervalued this quarter. We aren't as interested in homebuilders themselves because they tend to have very concentrated risk in large assets (like real estate developments). However, a building material stock like TREX gives us more diversified exposure to that side of the economy. From a technical perspective, TREX is trading just above the prior highs where we expect support to be established. However, because of the unknowns in the market, we recommend a strike price a little further out of the money than usual. That should give the stock some room to move if there is some short-term volatility in the major indexes. Here's How the Trade Can Work Out…
Instant income: With this put sell, we plan to collect an instant income payment of at least $200 per contract. Puts expire out of the money: If TREX's stock price remains above our $100 strike price at expiration on October 15, the puts will expire worthless, allowing us to keep the $200 per contract we receive for selling this option. That's a return of 15.7% in just 45 days, or an annualized return of 226.7%. Puts expire in the money: If TREX's stock price is below our strike price at expiration, you will be "put" 100 shares of TREX at a cost basis of $98 ($100 strike price – $2 option premium). That's a discount of 12.1% below the current market price. Taking possession of the shares will then allow us to write covered calls against the stock for additional income. If you do not want to take possession of the stock, you will need to "buy back to close" the put before expiration on October 15. We'll keep you posted as the trade progresses. | TREX common stock was trading for approximately $111.59 per share at the time of this alert. Long-Term Focused Strategic Positions: 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: - Put Write: (Short) AAPL September 17, 2021 $145 Put (AAPL210917P00145000) for a minimum of $1.75.
- Put Write: (Short) TGT September 17, 2021 $240 Put (TGT210917P00240000) for a minimum of $2.00.
- Put Write: (Short) BAC September 10, 2021 $39 Put (BAC210910P00039000) for a minimum of $0.33.
- Covered Call: (Short) CHGG September 17, 2021 $90 Call (CHGG210917C00090000) for a minimum of $0.45.
- Covered Call: (Short) LUV September 17, 2021 $55 Call (LUV210917C00055000) for a minimum of $0.35.
- Covered Call: (Short) TTWO September 17, 2021 $175 Call (TTWO210917C00175000) for a minimum of $1.30.
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: (Long) CHGG March (CHGG) – part of the CHGG covered call position.
- Long Stock: (Long) DIS April (DIS) for a maximum of $195.
- Long Stock: (Long) MU March (MU) for a maximum of $88.
- Covered Stock: (Long) LUV July (LUV) – part of the LUV covered call position.
- Covered Stock: (Long) TTWO March (TTWO) – part of the TTWO covered call position.
If put-writes and buy-writes are new strategies for you, be sure to check out the new videos and reports on our Resources page for more information. For more on these trades, be sure to attend our weekly webinar tomorrow, September 1 at 8:00 p.m. ET. If you missed last week's webinar, you can catch up here. Sincerely, 
John Jagerson and Wade Hansen
Editors, Strategic Trader
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