All eyes are on U.S. Treasuries again as trading reopened in the wake of last week’s selloff and a bond market holiday on Monday. The benchmark 10-year yield crept up to a fresh seven-year high, advancing past 3.26%, marking an increase of about 80 basis points from the start of 2018. U.S. stock index futures look poised for a fourth day of declines in response, down 0.5%, as traders gear up for $230B of Treasury auctions this week.
*Source: Seeking Alpha
Let’s consider Broadcom Ltd. (Ticker: AVGO):
The VantagePoint platform recently indicated downside 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 bearish crossover indicated by the blue predictive indicator line crossing below the black simple moving average on October 4th. We can combine that with the VantagePoint propriety neural index indicator moving from the GREEN to the RED on October 4th as well. This indicator measures strength and weakness for a 48-hour period, in this case, weakness. The move to the RED position further makes the case for a potentially bearish scenario. We also have the predicted high and low below yesterday’s actual high and low indicating further weakness. I want to play the VP bearish indication.
If you are strictly a stock trader, simply Selling AVGO in the $244.00 area is a prudent move. You are anticipating a move to the downside. It is always a good idea to enter a buy-stop order to mitigate potential losses. Placing that sell-stop in the $247.00 area will achieve that goal.
For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking a passive, premium credit approach may be the best path to success.
Because of the reasons given above, the sale of a credit call spread may be one way to approach this situation. You want to collect as much premium as you can while still staying within your risk tolerances. You may want to consider the AVGO 245/247.5 October 12th weekly expiration call spread, selling it for $1.00. The most you can gain is the premium collected and the most you can lose is the width of the wider spread less any premium collected. Max gain = $1.00 and max loss = $1.50
This means that you are laying odds of 1.50:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.