When is the live Q&A on the Members Forum?  

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Is the forum on Wed or FRi

 

 
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12:00 P.M. EST every Friday.

 
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Hi Tom,

Thank you for the great webinar the other day.

So I tried to apply your teachings.

I found an individual stock that fulfills the value investing criteria. It is even owned by Monish Pabrai and Guy Spier, two great value investors.

So the stock is Fiat Chrysler Automobiles (FCAU), trading on the NYSE. Good management, turnaround story, acquisition and expansion in a new country, i.e. United States with Chrysler and a low P/E of around 8.8, EPS growing.

So I checked the technical indicators as you can see in the following image:

<a href="https://ibb.co/j7Qrt8"><img src="https://preview.ibb.co/jjGxY8/FCAU_24_may.png" alt="FCAU_24_may" border="0"></a>

https://ibb.co/j7Qrt8

The Williams %R, Stock and MACD are all green and the price is almost touching a resistance. For me these are all signals that the stock is ready for a rebound.

So the strategy as you explained is to sell and buy a put at the same time:

The following PUT will expire in 56 days.

Sell FCAU's PUT at 19 for 0.3325 (we are collecting this amount)

Buy FCAU's PUT at 17 for 0.1 (we are paying this amount)

I choose to sell the PUT at 19, which is 12,5% less than the actual market price.

So the Net Credit will be: 0.3325-0.10=0.225.

The Spread between the two PUTs is  2, so the total risk is: 2-0.225= 1.775

As we can see the rate of return on this trade will be: net credit/total risk= 0.225/1.775=12.67% in 56 days.

 

Let me know how it is this trade.

Thank you for your time.

Matteo

 

 

of course the tech indicator is not Stock but Stoch, my mistake.

Hi Matteo,

I'm here.  Give me a moment to read and respond to your question.  Thanks for joining me today!

I think i added my response in the wrong area...did you see my response?

FCAU has been a holding of Monish's for quite some time.  I think that was or may still be his largest holding.

Yesterday the MA went Red, today the Stochastic went red.  MACD is green and W%R is almost green......

You learned this real quick!  You got it correct.  Then only thing I think you may be confused on is the terminology for resistance.  When a stock hits resistance, its hitting the Top or the Ceiling.  We want it bouncing support, aka, bottom or floor...but you are looking at the chart and set-up correctly

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ah right it is the support, of course.

Thank you for your comments.

So this could be a good trade to execute?

Based on the technical indicators, it looks fine.  The Probability OTM is only 81.96%.  We want it at 85%, but its not terribly off.  I cant recommend that you do it since Im not your financial advisor, but I can say that you have figured out the correct way to do this.  If it were me, I would do my analysis of the company before doing the trade just to make sure it fits the value investors strategy.  If we are doing a Bullish trade...we need to make sure its a good quality company that is poised to appreciate.  It all looks good then I think it is a wise decision. 

However....go back right now and read the trading rules real quick.  You are missing one of the rules and I want to see if you can figure out what it is.

Also, This strategy will be around forever, so dont rush in to it just yet.  I was the same way when I first started bc I was so excited to start applying this new found knowledge.  PRACTICE first on the Paper Trade platform until you have done a few without any mistakes and you have 100% confidence that you can do this on your own.  Its a lot less stressful to make mistakes with fake money than your own hard earned money.

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FCAU will publish the earnings around 7/27 but the options will expire on 7/20, should we still consider this trade as trading the stock during the earnings?

Great job!!!  You figured it out.  The options will expire prior to earnings, but I just wanted to make sure you didnt forget to look at that.  And remember, that rule only applies to individual stocks.  You can trade an index any time.  I looked at the charts for the last 4 earnings reports for FCAU the week before earnings, and there wasnt any unusual spikes in volume or any unusual price movements, so you should be fine.

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Good, so I will try to make this trade with paper money on Interactive Brokers.

Unfortunately I cannot open a demo account on TD Ameritrade, due I am from Italy.

Thank you for your time.

On Tuesday, when we do the live trading, I will pull up my Paper Trade on TD and let you place the trade yourself so I can see you enter the trade and make sure you do it properly.  we will also pick FCAU to analyze

...also, look at one more trade by tues and i'll look at that one too just as we are doing now.

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