Enphase energy (ENPH) has maintained very well in the context bear market this year and now walking near the point of purchase. Based on Check IBD StocksEnphase stock is #1 in its group.
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Plus, the solar inverter and battery storage company has a perfect solution. Overall rating of 99, a similar perfection EPS Rating of 99 and a star Relative Strength Rating of 98.
Enphase stock is higher than gain 21-day exponential moving average, as well as its 50 and 200-day moving averages. So let’s look at a trade in the form of a bull put the spread.
Again, arbitrage is a risk identification strategy, so you always know the worst-case scenario.
This type of trade will be profitable if ENPH trades sideways or higher — and even sometimes if it trades slightly lower.
Enphase Stock: Options Targeting December
With Enphase’s stock trading just below 320, if we use a put with an expiration date of December 16, we can sell a put with a strike price of 300 and buy a put at 295 for about $1.60.
Selling this spread would generate about $160 in premium with a maximum risk of $340.
If the spread expires worthless, then the trader will receive 47% profit after 3.5 weeks, as long as the stock rises above 300 at expiration.
Maximum loss? If Enphase stock closes below 295 on December 16, premium sellers will lose $340 on the trade.
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Break-even point
The breakeven point for the trade is 298.40. You can calculate this as 300 minus the $1.6 option premium per contract.
I will set a stop loss if Enphase stock drops below 305. If not, another rule of thumb? Limit losses to the premium received, which in this case would be $160.
Sticking to this stop loss will help avoid major losses if the trade goes south.
EPNH will not report earnings until January, so there is no earnings risk with this transaction.
Remember that options are risky and investors can lose 100% of their investment.
Gavin McMaster holds a Master’s degree in Applied Finance and Investments. He specializes in options trading, has a very conservative style and believes that patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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