A lot of investors will sit on their hands when volatility hits markets.
Maybe they’ll buy some more stocks. At some point down the road, the market will be higher.
You don’t have to sit around for months or years waiting for a rebound.
Instead, you can trade options and begin generating profits each week.
That’s because as traders, we thrive in volatile markets.
There are opportunities everywhere. The trick is spotting them. And knowing the best trade to put on.
It doesn’t matter whether stocks are going up or plunging lower, the opportunities are there to make money.
My bonus opportunity for you today is on a food giant that’s been severely punished amidst the coronavirus fallout – Sysco Corporation (NYSE: SYY).
Here’s how you could potentially double your money with options on Sysco.
Economic Data Looks Grim
This wholesale food giant is taking a beating.
It’s missing out on a ton of revenue as restaurants around the world close-up shop. Yes, some are still operating takeout orders, but it is nowhere near the volume we were seeing a month ago.
The stock has plunged to reflect this, down more than 40% over the last few months.
But I don’t think we are out of the woods yet.
We’re only now getting a glimpse of the economic data. And it looks grim.
The markets haven’t fully priced in just how bad the economy is.
Sysco shares are trading in a consolidation pattern known as an ascending triangle.
When a stock consolidates, it tends to breakout in the same direction it was headed in before the consolidation occurs.
In this case, that means we are expecting the stock to head lower.
Take a look:
My target price move for the stock is for shares to fall back to the lows, around $27. The gap that occurred before this consolidation period began will be a key level of resistance. If the stock rallies above $55 a share, then it’s time to take a different approach with the stock.
Until that happens, I will remain bearish on the company, and the correct way to trade it is with put options.
Your Trade Setup
To benefit from the expected decline, we can use a put option. As the stock declines, the value of our put option will rise.
Since the expected move is one month, we’ll use the August 21, 2020 expiration date to make sure we have enough time for the move to play out.
The stock is currently trading around $44 a share. We want to use the strike price that is closest to where the stock is trading. For this trade, that’s going to be the $45 put option.
That put option is trading at $7 a share, or $700 a contract. Don’t pay more than $8 for it. If shares fall to $27, you stand to double your money.
Since this is a bonus opportunity, we won’t be updating you on what action to take next. I recommend setting a limit order to sell half at whatever would net you a 50% gain.
For example, if you buy the put option for $7, you can set a limit order to sell half at $10.50.
To help limit downside risk, you can either exit if the stock closes above $55, of you when your loss falls below 50%.
Here’s the table with the trade setup:
We’d love to hear how your trades are going. We know it has been a tough environment. But these bonus trades, which have all been put options so far, are a great way to benefit from the next move lower.
Just send us an email at firstname.lastname@example.org and let us know what you think of them.
Chad Shoop, CMT
Editor, Quick Hit Profits