Calls on SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) with expiration dates in March are available. A call with a strike price of $145 is in the money right now and is trading at about $11.55. This option will be profitable if SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) trades above $156.55, or about 2% above the recent price. The loss on this trade is limited to the amount paid for the option, but a stop-loss should help reduce the risk.
Based on the stochastics buy signal, we expect SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) to trade up to at least $160 before next March. At that price, the call option would be worth at least $15.
We also expect a pullback and would be comfortable entering a buy-limit order to buy this option under $9. It should fall that low if DIA reached $150 on a pullback of about 3%.
Like we said, there’s a chance we’ll see a pullback soon, but it could get worse. There is a lot of discussion today that we are reaching the peak of a “triple top.” The major indices are currently trading near critical levels. In fact, in the years 2000 and 2007, they peaked near these levels.
However, there is a chance the market will continue higher, in which case, this order will never be filled. But this is a relatively low-risk, high-probability trade if the order is filled. If the order is not filled within 30 days, we recommend cancelling the order and moving on to the next trading opportunity.
Action to Take –>
— Buy DIA March 2014 145 Calls at $9 or less
— Set stop-loss at $6
— Set price target at $15 for a potential 67% gain in seven months or less
This article was originally published at ProfitableTrading.com
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