Put ratio spreads are an advanced option trade and are generally not suitable for beginners, but they can have a good place in your options portfolio. Considering the recent improvement in stock market movements, boeing (BA), now may be a good time to consider the potential gains in Boeing stock from this strategy.
X
Boeing stock has risen more than 16% from its October low of 176.25. The components of the Dow Jones Industrial Average are still in the early stages of building a new foundation. BA may face upside resistance at the 200-day moving average, currently at 208.05.
Option traders generally consider put ratio spreads to be a neutral strategy. However, you have the ability to profit from rising, falling, or sideways markets.
Yes, you can profit no matter which direction the market goes. But the key is in the timing!
Boeing stock soars on big order from Emirates at UAE Air Show
Boeing Stock Today: Prepare to Trade
A strategy using Boeing stock for this trade would be to buy one put option and sell two more put options out of the money.
When to Trade? When the trader believes the underlying stock is stable or falling slowly and will close near the expiring short put strike.
Lower implied volatility benefits trading. Also, this put ratio could generate profits if Boeing stock rises early in trading.
What are the main risks associated with the trade? Boeing stock drops sharply in early trading.
As an example of Boeing stock, you can buy a put expiring on December 15th with a strike price of 190 for about $3.40. You could then sell two of the December 15th 185-strike puts for about $2.25.
Because you are selling two put option contracts for $2.25 each, the trade results in a net credit of $1.10, or $110 per set of option contracts.
This would act as a maximum gain if Boeing stock remained above 190 as of the Dec. 15 expiration. Essentially, all puts expire worthless and the trader retains his $110 premium.
profit zone
A tent-shaped profit zone exists between 179 and 190, with maximum profit occurring at 185, for a total profit of about $600.
Although the profit zone is below the current stock price, the strategy starts with a bullish bias of delta 13. This means he roughly equates to owning 13 shares of BA, but this will change as the deal progresses.
Trading involves naked options, so it is not recommended for beginners.
Regarding the stop loss, we will exit the trade when it drops by $300.
BA evaluation needs improvement
according to IBD inventory diagnosisBoeing stock ranks 34th in the group; comprehensive evaluation Out of 50, EPS evaluation 21 and a Relative strength evaluation 47’s.
Furthermore, this combination trade You can close with a profit of $400 in BA from last month.
Please note that options are risky and investors can lose 100% of their investment.
This article is for educational purposes only and is not a trading recommendation. Always remember to do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster holds a Master’s degree in Applied Finance and Investments. He specializes in income trading using options, his style is very conservative, and he believes that patience waiting for the best setup is the key to successful trading. Follow him on Twitter @OptiontradinIQ
You’ll probably also like:
Butterfly option trading on Uber stock can yield returns that far exceed the risks.
Unusual Target Return Option Trading Offers Big Profit Potential
DraftKings stock price is on the rise.Here’s how you can earn money
Netflix Stock Price Today: This Bull Put Spread Could Generate a 22% Return Through December