Updated: Dec 6, 2018
Two potentially market moving events are now in the books. Today saw the official start to the "trade war" if we're calling it that with the first 34 billion of tariffs taking effect. Also we had the June jobs report which was slightly better than expected at 213,000 added. No major fireworks in the markets response so we've got some green lights to get back into it.
* Each of our strategies typically only trade 2-3 times per month on average but the next couple days (today and Monday) will likely be more active than normal. I'll send the emails a little early on heavier trading days.
Our "Wheel of Fun" put trades on CVS that started in March and ended this past June were very successful. That's typically how we want the wheel trade to go. Starting with a cash secured put that gets assigned, followed by a couple months of collecting covered call premium before losing the shares.
Well our old friend CVS has given us another opportunity. After the news that Amazon is potentially getting into a similar market, CVS saw a substantial drop from over 70$ back down to around 65$ where it is now. It's a good set up for the same trade structure.
The Trade:Basic "Wheel of Fun" Put <--- Video explanation
SELL to OPEN 1 x 20 July 18' CVS 64 PUT Credit: ~ 0.80
* prices will change throughout the day so just do the best you can
Margin requirement: - 1 option contract = 100 shares if assigned - 100 shares of CVS @ 64 = 6,400 - This trade requires 6,400 of reserved capital per contract
- The VTS Discretionary model portfolio is at 26,846.48 - 1 contract = 6,400 margin - 6,400 is 23.8% of the portfolio
* You can scale your trade to roughly 25% of your VTS Discretionary funds
Stop-loss: - We always use a 10% stop-loss on this type of trade - 6,400 per contract is what the trade is valued at - 6,400 * 10% = 640
* If we are down more than 640$ per contract we will close it
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