Strategy Stock Falling Can Produce Profit Using This Trade

strategy (MSTR) The stock closed near its intraday low on Tuesday and is below its 21-day, 50-day and 200-day moving averages. The strategy has also seen a decline in the relative strength line since mid-July.

A look at the bearish call spread assumes that Strategy, a high-profile Bitcoin investor and business software maker, will struggle to get back above 350 between now and mid-November.

A bear call spread involves selling an out-of-the-money call and buying another out-of-the-money call.

An options strategy can be profitable if the stock is trading lower, or sideways, and even if it is trading slightly higher, as long as it remains below the short call at expiration.

In the options market, a bearish call spread for expiration on November 21 on strategic stocks using strike prices 350-355 can be sold for approximately $1.

Maximum profit, maximum loss

Traders who sell the spread will receive an option premium of $100, which is also the maximum possible profit. The maximum loss will be $400. This represents a potential return of 25% between now and November 21st.

The spread will make maximum profit if the strategy’s stock closes below 350 on November 21, in which case the entire spread will expire worthless, allowing the trader to keep the $100 option premium. Basically, this means you want the strategy stock to stay below its 200-day line.

Meanwhile, the maximum loss will occur if the strategy closes above 355 on November 21, which will result in the super seller losing $400 on the trade.

While some options trades carry the risk of unlimited losses, the bearish call spread is a risk-limited strategy, and you always know the worst-case scenario in advance.

The breakeven price is 351 at expiry. Regarding trade management before expiration, a stop loss can be set if the strategy trades above 330, or if the spread goes from $1 to $2.

Strategy Reviews at IBD

Bearish call spreads can be a good way to generate some income while the stock remains in a downtrend.

Investor’s Business Daily presents Stock Strategy A Composite evaluation Of 20 of the best 99 possible, and Earnings per share rating From 32 and a Relative strength rating From 21. According to IBD inventory checkthe strategy ranks 53rd in its group.

The strategy is scheduled to report earnings in late October, so this trade will have profit risk if held until expiration.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for educational purposes only and is not a commercial recommendation. Always remember to conduct your due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster holds a Master’s degree in Applied finance and Investment. He specializes in income trading using options, and is conservative in his style. He also believes that patience in waiting for the best settings is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.

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