DailyPlay – Opening Trade (PSX) – November 1, 2023

PSX Bearish Opening Trade Signal

View PSX Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 6 Contracts Dec 15th $115/$120 Call Vertical Spreads @ $1.88 Credit per contract.

Total Risk: This trade has a max risk of $1,872 (6 Contracts x $312) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $312 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is trading neutral, but expected to break lower.

1M/6M Trends: Neutral/Neutral

Relative Strength: 9/10

OptionsPlay Score: 97

Stop Loss: @@ $3.75 Debit. (100% loss on premium paid)

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Tuesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

With oil prices in retreat, energy stocks are losing its leadership and at risk of pulling back. If we look at PSX, it recently has started to complete the right shoulder in a head & shoulders topping formation. This is a sign that there could be some downside as oil prices trade near 6-month lows and broke below key level of support at $83. This will put pressure on energy stocks global breakeven costs continue to rise and demand continues to remain soft despite restrictions on supply. PSX also trades at the higher end of its valuation compared to its peers considering analysts are expecting EPS to contract by 15% in FY2024. While my view isn’t overly bearish, I think it’s an opportunity to establish a neutral to bearish stance by selling a call spread. I’m looking to sell the Dec $115/120 Call Vertical @ $1.88 Credit. With a hypothetical portfolio of $100,000, I recommend risking 2% of the portfolio’s value to this roll, which is 6 Contracts for a risk of $1,872. We will set a stop loss on the put spread at around 100% of the premium collected @ $3.75 Debit.

PSX – Daily