Option Trade of the Day: Dana Inc. (DAN)
Stocks waffled back and forth from gains to losses again yesterday and that was after the Fourth Quarter GDP was ratcheted up to 2.9%. That was above expectations and it is rare that the third estimate changes that much. Unfortunately I think investors weren’t sure whether to take it as a positive or a negative.[hana-code-insert name=’adsense-article’ /]After all of the selling last week, the scans have continued to produce more bullish signals than bearish signals as so many stocks were oversold.
Last night’s tallies were 154 bullish signals and only five bearish signals.
These additions to the barometer caused it to jump to 113.6.
Despite the huge positive reading from the barometer, I can’t help but think we are at a potential major point in the market and I don’t know if we are going to break lower or bounce back.
Therefore I am recommending another straddle for the second time this week.
This time the stock is Dana Inc. (NYSE: DAN) and it is at a possible pivot point. The company has great fundamentals and under normal market conditions I would probably recommend a straight call purchase, but the added volatility of the market makes me less confident in a one-way trade.
After taking all of the items listed above in to account, I am suggesting a straddle at the 25 level for DAN. The stock had a temporary high there last July and it could very well act as support now. If it acts as support, the stock could easily bounce back above $30 and if it gives way it could drop to $20 rather easily.
Buy to open the May18 25 strike straddle on DAN at $3.05 or better. These options expire on May18. The calls are priced at $1.55 and the puts are priced at $1.50 making the straddle $3.05. With a target profit of 50%, the straddle would need to get to $4.58. This means the stock needs to jump to $29.58 or drop to $20.42.
— Rick Pendergraft[hana-code-insert name=’MMPress’ /]