I just did a Buy-Write with Dish Network (DISH).
DISH is going higher today in a down market so I did a little homework. While I was reading the stock was featured on “Unusual Activity” on CNBC. It was getting tons of Calls bought. According to the Najarian Bros, who bought Calls, the stock will be going up. When I was doing my homework I noticed, when looking at the candlestick chart, that it was in a near perfect “cup & handle” pattern. To me it looks like this stock is ready for a breakout. Not that I really want to own the stock. In fact, I’m trying to not own stock, but it looked like a stock that will not be going down this week, so I did a Buy-Write. Because of all the options volume the premiums are high.
As with my AMD Buy-Write, I got into this position to get assigned. When you pick a Strike Price with your best chance to get assigned you get a nice premium. I bought 1000 shares of the stock at $35.80 and sold a $36 Call to expire this Friday. I received a premium of 85¢ for $850. On a stock I paid $35.80, it’s a 2.4% premium. This is a Covered Call on a stock I think is going up so it gets a Risk Factor 1.
Dish Network – Buy-Write
Buy 1000 Shares DISH @ $35.80
Sell to Open 10 DISH 9.20/19 $36.00 C @ 85¢ (+$850)
Let’s take a look at the “Cup & Handle” pattern. Below is a picture I snapped off a website when I googled the Pattern.
The illustration above came with the following explanation.
The handle has to be smaller than the cup and should only indicate a slight downward trend – not one that goes lower than 1/3 of the way into the cup. Investors who see a similar pattern where the handle goes deeper might want to make efforts to avoid it.
Now let’s take a look at a snap shot of the candlestick chart of Dish Network. Take a look at the “cup shape. Also notice the size of the handle. The last green candlestick is today’s. It’s a green stick which means it’s an up day. If you compare the handle of the illustration above with the handle of the Dish Network chart, it looks like it’s ready for a breakout.
This is so convincing to me I might consider buying an option. I’m gonna go back to my trading screen.
I just placed an order to buy 10 DISH 6/19/20 $35 Calls for a premium of $6.30. This option has a long time to expiration and it has a Delta of 0.62. If the stock does go up my option will go up 62¢ for every $1 the stock moves. I did’t get filled yet so I’m gonna send out this post and I’ll let you know when and if I get filled.
Steve
The Options Coach