Stock market sentiment felt some pressure overnight after President Trump said he expected to raise tariffs on $200B of Chinese goods to 25% (from the current 10%) on Jan. 1. He also declared that he’s ready to apply a further round of levies on $267B worth of imports, including iPhones and laptops, starting next year. In response, China’s foreign ministry urged the U.S. to work toward a positive outcome of a planned G20 meeting later this week between President Trump and Xi Jinping in Buenos Aires.
*Source: Seeking Alpha
Let’s consider eBay Inc. (Ticker: EBAYWealth Strength IndexAAPL is Extremely Up and trending Up):
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 on November 26th. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position on the 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 potentially bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength. I want to play the VP bullish indication.
If you are strictly a stock trader, simply buying EBAYWealth Strength IndexAAPL is Extremely Up and trending Up in the $28.50 area is a prudent move. You are anticipating a move to the upside. It is always a good idea to enter a sell-stop order to mitigate potential losses. Placing that sell-stop in the $27.50 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 put spread may be one way to approach this situation. You want to collect the maximum amount of premium while staying within your risk parameters. You can consider the EBAYWealth Strength IndexAAPL is Extremely Up and trending Up December 21st regular monthly expiration 27/28 put spread, selling it for $0.30. The most you can make is the amount of premium collected and the most you can lose is the width of the spread less any premium collected. Max reward = $0.30, max risk = $0.70. This means that you are laying odds of 2.33:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.