Using short-term stock swings for long-term portfolio profits.
Trading options is inherently shorter-term in nature. Options have an expiration date while stocks can be held for months and years. POWR Options usually focuses on trades that expire in two to four months. That allows enough time for the POWR Ratings that are the core of the option trade selection process to work their magic, while keeping the premiums paid for the options at a reasonable level.
This makes the POWR Options trading approach ideal for shorter-term swing trades. It is an ideal overlay to the other POWR stock services that tend to hold positions for a slightly longer intermediate time frame.
2022 is shaping up to be more of a rangebound market given the inflationary headwinds. The shorter-term POWR Options methodology is ideal for a sideways, choppy market that may be what is in store for the coming months. It allows multiple entries and exits that profit from a swing between support and resistance areas.
A walk-through of our two most recent trades in Arcelor Mittal (MT) for the POWR Options portfolio will help shed some light on this swing trading approach.
Arcelor Mittal is a Strong Buy “A Rated” stock in the A Rated Steel Industry. It also has ranks very highly within the Steel Industry, checking in at number 6 out of 36.
It also has a Value Component Grade of A -Strong Buy- with a solid grade of B-Buy-from a Growth perspective. So a strong stock with strong grades within a strong industry.
POWR Options always likes to take a deep look at the technical backdrop when combing through the list of potential trade candidates. The MT chart below will help illuminate the idea generation process.
MT has strong support at the $28 area. It bounced off this level numerous times over the past year. Invariably, shares were oversold on numerous technicals (RSI, MACD, Bollinger Percent B) when this bounce occurred. MT also was trading at a significant discount to the 20-day moving average each of these times.
POWR Options began November 15, 2021. Our third trade ever was a bullish call play in Arcelor Mittal on November 24. MT stock was oversold and trading right at the $28 support level. It carried a Strong Buy -A Rating- at that time.
POWR Options then issued the buy alert shown below on November 24:
Action To Take
Buy to open MT 1/21/2022 $29 call for $2.35 w/.10 discretion
Each option will cost around $235 per contract
MT subsequently rallied sharply and reached oversold readings on December 14 when a close-out was issued:
Sell to close MT 1/22/2022 $29 calls @ 3.10 w .10 discretion
Overall the trade netted a 32% return in three weeks. In that same time frame MT stock moved from $29.18 to $31.26-or just over 7%. This also highlights the leverage beneficial leverage effect possible when using options in place of stock.
Arcelor Mittal peaked in mid-January before once again dropping back to the $28 support area. Shares were still A rated and were once again oversold. This led to a fresh recommendation to buy calls on January 31.
Action To Take
Buy to open MT June $27 calls at $4.70 w/.10 discretion
Each option will cost around $470 per contract
MT stock once again rallied sharply before reaching oversold readings on February 9 and were closed out.
Sell to close MT 6/17/2022 $27 calls at $7.80 w/.10 discretion
The second trade in MT resulted in 60% plus gains in less than two weeks. The power of leverage on display.
Arcelor Mittal is once again approaching the $28 support area. POWR Options will be looking for the set-up to put on a bullish call trade for a third time if MT drops a few points from the current closing price of $30.33.
The POWR Options Portfolio did a similar one-two punch trade on the put side in Royal Caribbean (RCL) that also resulted in quick, short-term swing trade gains on the put side.
Taking advantage of smaller short term moves with the leverage that options provide will be an invaluable tool as markets overall begin to cool. Using POWR Options along with the other POWR stock services can provide a perfect compliment to boosting overall returns without adding undue risk.
This will be even more important if 2022 is finally the year that stocks begin to lose a little of the Fed-fueled steam that propelled stocks to out-sized returns over the past few years.
What To Do Next?
If you’re looking for the best options trades for today’s market, you should check out our latest presentation How to Trade Options with the POWR Ratings. Here we show you how to consistently find the top options trades, while minimizing risk.
If that appeals to you, and you want to learn more about this powerful new options strategy, then click below to get access to this timely investment presentation now:
All the Best!
MT shares were trading at $30.33 per share on Monday morning, down $0.13 (-0.43%). Year-to-date, MT has declined -4.71%, versus a -8.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Tim Biggam
Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. He makes regular appearances on Bloomberg TV and is a weekly contributor to the TD Ameritrade Network “Morning Trade Live”. His overriding passion is to make the complex world of options more understandable and therefore more useful to the everyday trader. Tim is the editor of the POWR Options newsletter. Learn more about Tim’s background, along with links to his most recent articles.
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