Option Income (EWZ)
Potential start of natural resources bull market.
Resource rich countries are benefiting and it is time to take advantage.
This past month the price of crude oil is up 12%, gold up 6%, and iron ore up 22%. This is great news for Brazil with their stock market having a combined 28% exposure to energy and materials sectors.
The chart below shows EWZ rising to new 52 week highs with the 200 day moving average rising as well.
After this strong uptrend a consolidation or slight pullback is likely which is why a trade for income strategy make sense today.
Trade details:
Sell to open August 16, $46 puts on EWZ for $1.40 using a limit order.
At expiration if shares are above $46: put sellers will keep the $1.40 for a 30% annualized return.
At expiration if shares are below $46: put sellers will buy shares at a 3% discount. Then you can hold for potential capital gains or look to sell call options for more income.
Use a stop loss at $38.50 which is about 6% below EWZ's 200-DMA.
With natural resources on the rise EWZ is hitting new 52 week highs. Today is a good time to profit by selling put options.
Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.
Stick to the plan and earn more income by selling a covered call.
On July 10, you could have sold the August 16, $46 puts on the iShares MSCI Brazil Capped Fund (EWZ) for $1.25 each. You would have been assigned 100 shares of stock for every put sold with a cost basis of $44.75 ($46-$1.25).
Generate more income today sell the December 20, $45 covered calls on your EWZ shares for around $1.28 using a limit order. On the expiration date this position will be 7.7% annualized return (since it took time for the shares to recover enough to provide a good covered call opportunity).
Use a stop loss at $38.50 for protection. (about 14% below cost basis).
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