Rule Two: Buy more time until expiration than you may need — at least three to six months — for the trade to develop.
Time is an investor’s greatest asset when you have completely limited the exposure risks. Traders often do not buy enough time for the trade to achieve profitable results. Nothing is more frustrating than being right about a move only after the option has expired.
With these rules in mind, I would recommend the Schlumberger Limited. (NYSE:SLB) Feb 70 Calls at $13.75 or less.
A close below $80 in Schlumberger Limited. (NYSE:SLB) on a weekly basis or the loss of half of the option’s premium would trigger an exit. If you do not use a stop, the maximum loss is still limited to the $1,375 or less paid per option contract. The upside, on the other hand, is unlimited. And the February options give the bull trend six months to develop.
This trade breaks even at $83.75 ($70 strike plus $13.75 options premium). That is less than $2 above SLB’s current price. If shares hit the $90 target, then the call options would have $20 of intrinsic value and deliver a gain of 45%.
Recommended Trade Setup:
— Buy Schlumberger Limited. (NYSE:SLB) Feb 70 Calls at $13.75 or less
— Set stop-loss at $6.87
— Set initial price target at $20 for a potential 45% gain in six months
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