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Published Aug 26, 21
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00-strike offers more downside protection than an at-the-money (ATM) or out-of-the-money (OTM) call. Assuming a trader would now enter this covered call trade at $57. 15, at expiration, the maximum return would be $460, i. e., ($675 - ($57. 15 - $55. 00) X 100), excluding trading commissions and costs.

The intrinsic value would be the tangible value of the option if it were exercised now. Thus, our SNAP call option's intrinsic value is ($57. 15 - $55. 00) X 100, or $215. The extrinsic value is the difference between the market price of an option (or the premium) and its intrinsic price.

At expiration, this trade would break even at a SNAP stock price of $50. 40 (i. e., $57. 15 - $6. 75), excluding trading commissions and costs. Another way to think of this break-even price is to subtract the call option premium ($6. 75) from the underlying SNAP stock price when we initiated the covered call (i.

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15). On May 21, if SNAP stock closes below $50. 40, the trade would start losing money within this covered call setup. Therefore, by selling the covered call, the investor has some protection against a potential loss in the case of a decline in the underlying shares. In theory, a stock's price could drop to $0.

There might also be brokerage fees if the stock is called away. As part of the exit strategy, the trader might also consider rolling this deep ITM call option. In that case, the trader would buy back the $55. 00 call before expiry on May 21. Depending on her/his views and objectives regarding the underlying SNAP stock, s/he could consider initiating another covered call position.

Momentum investing is essentially the opposite of the tried-and-tested Wall Street adage -- "buy low and sell high." Investors following this investing style typically avoid betting on cheap stocks and waiting long for them to recover. They believe instead that one could make far more money in lesser time by "buying high and selling higher."Everyone likes betting on fast-moving trending stocks, but it isn't easy to determine the right entry point.

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In that phase, investors find themselves invested in shares that have limited to no upside or even a downside. So, betting on a stock just by looking at the traditional momentum parameters could be risky at times. It could be safer to invest in bargain stocks that have been witnessing price momentum recently.

There are several stocks that currently pass through the screen and United States Steel (X) is one of them. Here are the key reasons why this stock is a great candidate. A dash of recent price momentum reflects growing interest of investors in a stock. With a four-week price change of 6.

This indicates that the stock moves 126% higher than the market in either direction. Given this price performance, it is no surprise that X has a Momentum Score of A, which indicates that this is the right time to enter the stock to take advantage of the momentum with the highest probability of success.

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X is currently trading at 0. 65 times its sales. In other words, investors need to pay only 65 cents for each dollar of sales. So, X appears to have plenty of room to run, and that too at a fast pace. In addition to X, there are several other stocks that currently pass through our 'Fast-Paced Momentum at a Bargain' screen.

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This is not the only screen that could help you find your next winning stock pick. Based on your personal investing style, you may choose from over 45 Zacks Premium Screens that are strategically created to beat the market. However, keep in mind that the key to a successful stock-picking strategy is to ensure that it produced profitable results in the past.

In addition to allowing you to backtest the effectiveness of your strategy, the program comes loaded with some of our most successful stock-picking strategies. Click here to sign up for a free trial to the Research Wizard today. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.

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To achieve the same, investors use strategies as per their convenience. One such strategy which is used in the market is momentum trading. Today we will take an in-depth look at momentum trading ad help you in leveraging this strategy which may help you in making fruitful investments in the market.

Momentum trading is based on a concept, according to which, if a moving price is pushed further by a force, it will continue to move further in the same direction. In other words, if the price of a particular asset moves higher, it will definitely attract more traders and investors which will help the asset in achieving higher prices.

Opposite momentum will be created when there are enough sellers in the market to dominate the buying force. This opposite momentum will force the price of the asset to reduce. Implementing Momentum Trading Strategy Momentum trading requires the investor to identify the momentum of trends in the market. Once the direction and strength of the trend is identified, the investor can create a position in the market with the objective of gaining from the change in the price of the asset.

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As a momentum trader, it is important to focus on the price move rather than focusing on the high and low of the trend. Momentum traders make the most out of herd mentality and market sentiments. Factors to be Considered for Implementing a Solid Strategy Momentum trading strategy relies on three main factors.

Volume of the Assets Traded The first factor for implementing a momentum trading strategy is volume of the asset. Usually, volume is the number of transactions in an asset, however in terms of momentum trading, the amount of asset which is traded in a specific time frame is known as its volume.

There should be enough buyers and sellers available in the market. A highly liquid market i. e., a market with plenty of buyers and sellers is the preferred choice of investors for momentum trading rather than illiquid market. Volatility in the Market Conditions, Volatility is the fuel for momentum trading.

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Momentum traders make the most out of these rises and falls in the prices of assets. Momentum trading involves capitalization of this volatility in the market. However, it is important to note that high volatility will always have a higher risk associated. Therefore, it is important to have your risk profile updated before implementing momentum trading strategies.

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The Time Frame of the Trade, Momentum trading strategy is mainly used for short term price movements. The time frame between opening a position and closing it is known as the time frame of the trade. The time frame of the trade is an important factor for analyzing the strength of the trend.

Therefore, before choosing any strategy for trading, it is recommended to have basic knowledge and clarity about investing. If you are new to the market, you can get in touch with an investment advisor who will guide you with the basics of the market and help you in choosing the perfect trading strategy for your needs.

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Many times, traders buy cheap, out-of-the-money call options that expire in a few months or less to participate in the anticipated advance of expensive stocks. Though these trades are attractive to many investors because they do not cost a lot of money, they often prove to be very frustrating because the stock must react as expected in a short time period.

As many seasoned traders understand, timing is everything in the market, which is why many cheap bets tend not to work as planned. A lot of traders balk at buying naked options at first. Since the option can expire worthless, it may be seen as a gamble or unnecessary expense – two things which may be true of cheap, out-of-the-money options.

Let’s take a look at IBM, a blue-chip that falls into the momentum category based its recent uptrend. Say that you or a client likes the fundamentals of IBM, which was trading at $163. 46 at the time of this writing, and that you have identified a price target of $175.