A New Trade with 100% Profit Potential

A New Trade with 100% Profit Potential

Posted On May 11, 2021 2:03 pm

As I’ve recently discussed, the market has been incredibly tricky to trade.  Patience and discipline have never been more important. 

The initial challenge started about 8 months ago when we shifted from nearly everything going up into a heavy-rotation environment of “stay-at-home” (out-of-growth tech) stocks and into cyclical value and businesses that reaped the benefits of “reopening.” Initially, if you caught that respective theme, nearly any stock in the various sectors would work. However, the problem was in the rotations switching back and forth on a near-daily basis. 

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This kept the major indices such as the S&P 500 Index (SPY) and Nasdaq 100 (QQQ),  moving higher in a seemingly orderly fashion. However, beneath the calm surface, there was incredible turbulence.  Monday was a perfect example of that — while the SPY dropped some 1%, 223 of the 500 stocks hit 52-week highs yesterday; the most since at least 1990.  It’s cliche but it really has become a “stock pickers’” market. 

This is why it’s crucial to be disciplined, stick with your process and wait for proper risk/reward setups.  For example, my discussion last week on getting long on Netflix (NFLX) if it could hold above $500 confirming a bullish reversal. 

My patience in waiting for confirmation paid off as the stock broke below $500.  And as of this morning, it traded as low as $478. I’ll be keeping NFLX on my watch list. But, it will need a new setup before I make a trade. I may want to establish a short/bearish position if it gets back to the $510 level, which will now be resistance. 

nflx chart 2021

Staying out of trouble and avoiding big drawdowns has been nearly as important as picking winners to keep the Options360 performance on a steady rise; up some 17% for the year-to-date. 

Speaking of bearish positions, I just added one on Monday.  Aside from the SPY ‘triple plays,” I’ve been using, the current one has now locked in a 35% gain with one more roll before this Friday’s expiration. I hadn’t established a bearish position in an individual name since early March. Needless to say, It didn’t work out. 

My new trade is in Hilton (HLT) hotels. The Alert sent to Option360 members yesterday laid out the following trade thesis. 

“HLT operates some 570 hotels under a broad range of brands with about a third being owned by the company and the rest managed through leasing or franchise agreements. 

Last week it reported disappointing earnings results with misses on both top and bottom line. I think it will remain challenged as business travel will be slow to come back and leisure travelers are looking to go to more remote locations and stay in more intimate settings.   

Cost, such as aforementioned wages, and a balance sheet carrying over $8 billion in debt puts it on shaky ground with the need to raise money lurking in the background. 

The chart shows it broke an uptrend and is now forming a potential bearish flag below the $125 resistance level.

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hlt 2021 chart

There are only monthly options.  We can start with calendar and then hopefully roll into a favorable diagonal “


-Buy to open 2 contracts July (7/16) 120 Put

-Sell to open 2 contracts May (5/21) 120 Put

For a Net Debit of $3.40 (do not go above $3.60) 

The game plan will be to roll the short May put down and out to the June 115 strike next week to create a diagonal spread.  Assuming HLT shares are still around the $120 level, I expect to collect an additional $2.00 in premium to bring the cost basis down below $2.50 on a $5 wide spread.  This will give us the opportunity to realize a 100% gain as HLT shares drop below $115 over the next 4-6 weeks. 

The market is now creating some very good opportunities, the key will be patience and discipline. To see what comes next, take advantage of this special offer of just $19 for a one-month trial in the Options360 Concierge Trading Service. 


About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.