We will be opening up a new synthetic or poor man’s covered call today on one of the blue chip stocks. We had good profits in Procter and gamble last week. We would like to continue these types of trades.
First a little discussion on the blue-chip stocks or the Dow components. As income traders, they have everything we need. Liquidity, higher prices which command higher premiums, smoother returns, lower volatility, and plenty of strike prices for the options. While the Fang and meme stocks get most of the headlines, 90% of people lose money trading those. We want to be in the 10% that makes money, and it is just much easier with the blue chips. Remember as income traders, our first goal is to make income and if we have tools that allow us to do that easily we should take advantage of them.
I was looking at Procter and gamble again this morning, but by all metrics and on the algorithm, it is overbought. A quick scan turned up twelve other names that we can trade. All are liquid, all have good prices and are very tradable. They are also diversified. Some are in the banking sector and finances, others were retailers, and others were manufacturers and pharmaceutical companies. That also shows you how diversified the Dow Jones industrial average stocks are. I was able to find 12 stocks out of 30 that are tradable today for a neutral to slightly bullish bias. I was hoping for a pullback but the market keeps going higher so we will skew this to the upside.
So anyway, here’s the trade for the day.
3M (MMM): 103.61
TRADE ACTION: Buy the 16 JUN 100 / 14 APR 104 call diagonal spread for a debit of around 5.64
Buy to open the MMM 16 JUN 100 call
Sell to open the MMM 14 APR 104 call
The Master Portfolio is trading 5 contracts