The market probably needs a bit of a pause here so I wanted to add a Bear Call Spread. I analyzed the Dow stocks because they had good option liquidity and tight spreads and found that XOM was one of the most bearish looking charts (no surprises there).
I was actually bullish XOM late last year as a turn around play which turned out to be one of my worst calls ever, but hey it happens.
I got stopped out of my long-term put spreads in March and now the stock is bouncing back but looks like it will have trouble with the declining 50-day moving average.
On the chart I’m also not seeing any sign whatsoever of accumulation so I think this latest rally is just a dead cat bounce.
I’ll use the 50-day moving average as my stop loss and if XOM closes above that level, then I’m out of the trade.
Earnings are also set for May 1, so I might end up closing it before then.
This trade has a $375 profit potential on capital at risk of $875 for a potential 42.86% return.
Let’s see how it goes.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
