Has CF found its low? Up, up and away?

White House economic adviser Gary Cohn is reportedly summoning executives of U.S. companies that depend on metal imports to meet with President Trump this week in an attempt to halt his proposed tariffs. The decision is viewed inside the White House as a possible breaking point for Cohn. House Speaker Paul Ryan also urged Trump to reconsider his decision yesterday, but the president insisted that “we’re not backing down.” The markets breathed a sigh of relief.

We have a bullish crossover indicated by the blue predictive indicator line crossing above the black, simple 10-day moving average on 3/2/18. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the Green position a trading day before back on 2/27/18. 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. That’s why one could consider entertaining a setup to the upside.

The first thing that you want to determine is your target price. You need three pieces of information to complete this calculation: current price, expiration date and at-the-money volatility for that time frame. This calculation yields a target price of approximately $50.00. One could consider the potential opportunity of the April regular expiration 47.50/50.00 vertical paying $0.60. This has a maximum risk of what you paid for the spread, or $0.60. The maximum reward is the width of the spread less any premium paid or $2.50 – $0.60 = $1.90 This gives us a reward to risk ratio of 3.17:1.

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