The meeting between President Trump and Kim Jong-un was met with a shrug by U.S. stock index futures as the two leaders signed a “comprehensive” and “historic” document that included the following four points: Establishing new US-DPRK relations, building a lasting and stable peace regime, reaffirming commitments to work toward complete denuclearization and recovering POW/MIA remains. U.S. sanctions will remain in effect for the time being and American forces will not be reduced on the Korean peninsula.

*Source:  Seeking Alpha

The market continues to melt up, given this; we are still looking for upside opportunities.

Let’s consider United Continental Holdings, Inc. (ticker: UAL)

The VantagePoint platform recently indicated upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 6/8/18 and 6/11/18.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position between 6/5/2018 and 6/6/2018 that same day.  This indicator measures strength and weakness for a 48-hour period, in this case strength.  The move to the GREEN position further makes the case for a potential bullish scenario. Additionally, we see that the predicted high and low for today’s range is above the actual high and low from yesterday’s session.  I want to play the VP bullish indication.

Strategy Discussion

If one were a straight stock trader, simply buying UAL in the $72.00 area could prove to be prudent. You are anticipating a move to the upside. It’s also a conservative way to enter UAL without the limitation of time associated with other strategies. In this scenario, it would also be good practice to place a sell-stop order in the $69.50 area to mitigate potential losses.

For more active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  You want first calculate your target strike.  In order to do this, you need three pieces of information:  last trade price, expiration date and implied volatility for that expiration date.  This calculation for UAL yields a target strike of approximately $75.00.  You may want to consider the June 22nd weekly expiration 73.5/75 call spread, paying $0.35.  The maximum risk is the amount of premium you pay and the maximum reward is the width of the spread less any premium paid.  In this case, maximum risk is $0.35 and maximum risk is $1.15.  This gives you a reward to risk ratio of 3.29:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

Mike Shorr
Mike Shorr
Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProperTradingAcademy.