This Trade Targets a 200% Return in 6 Weeks

Option Trade of the Day: Range Resources (RRC)

Much like we saw on Tuesday, the S&P traded in relatively tight range on Thursday staying within a 20-point range on the day. The index was just grinding sideways for most of the day, but rallied when information was released that President Trump backed off of on some of his tariff plans for steel and aluminum imports. This spurred some relief buying.

[hana-code-insert name=’adsense-article’ /]Today’s employment report will be the big story and I would keep an eye on three numbers: the number of jobs added, the unemployment rate, and the average hourly earnings.

The selloff we experienced in late January and early February was partially attributed to the labor market becoming too tight and that would increase the inflation rate.

My scans switched gears a little last night and produced more bearish signals than bullish signals by a count of 54 to 11.

As a result of this development, today’s trade idea is a bearish one.

The company is Range Resources (NYSE: RRC) and they are an oil and gas exploration company. The fundamentals for the company are weak, but the sentiment is bullish. In fact, the sentiment hit its highest reading of the past year on Monday.

Looking at the chart we see that the stock has been trending lower and seems to have trouble right after it crosses its 50-day moving average. The stock just moved above the trendline on Wednesday and then closed back below it yesterday. We also see the bearish crossover from the stochastic readings and I have marked the last few times we have seen this happen with the percentage decline notes.

Buy to open the Apr18 15 strike puts on RRC at $1.00 or better. These options will expire on April 20. We see from the four declines marked on the chart that a double-digit decline is highly likely and that is a good thing because we need a drop of 13.3% for these options to double. I wouldn’t be surprised to see the stock dip back down to the $12 range and that would mean the intrinsic value on these options would be $3.00 and that create a 200% gain on the trade.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.