Energy in phase (ENPH) has held up very well during the bear market this year and is currently progressing near a point of purchase. According to IBD stock controlEnphase stock ranks first in its group.
In addition, the solar inverter and battery storage company owns a perfect Composite rating of 99, just as perfect EPS rating of 99 and a stellar Evaluation of relative strength of 98.
Enphase stock is trading above its 21-day EMA as well as its 50-day and 200-day moving averages. Therefore, let’s go watch a trade in the form of a bullish spread put.
As a reminder, a bull put spread is a definite risk strategy, so always know the worst-case scenario ahead of time.
This type of trade will profit if the ENPH trades sideways or higher, and sometimes even if it trades slightly lower.
Enphase Stock: Target December options
With Enphase stock trading just below 320, if we use put options expiring on December 16, we can sell a put option with a strike price of 300 and buy a 295 put for about $1.60.
Selling this spread would generate approximately $160 in premium with a maximum risk of $340.
If the spread expires worthless, the trader gets a 47% return in 3-1/2 weeks, provided the stock goes over 300 at expiration.
The maximum loss? If Enphase stock closes below 295 on Dec. 16, the premium seller would lose $340 on the trade.
Cheap stocks to buy and watch right now: Consider these 13 names
The breakeven point for the trade stands at 298.40. You can calculate that as 300 less than the $1.60 option premium per contract.
I would set a stop loss if Enphase stock falls below 305. If not, another good rule of thumb? Limit the loss to the amount of the prize received, which in this case would be $160.
Sticking to this stop loss level will help avoid big losses if the trade goes south.
EPNH will not have to report earnings until January, so there would be no money risk with this deal.
Remember that options are risky and investors can lose 100% of their investment.
Gavin McMaster has a master’s degree in applied finance and investing. He specializes in income trading using options, is very conservative in his style and believes that patience waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
YOU MAY ALSO LIKE:
Trading Tesla’s broken wing and butterfly options can net you nearly $1,000
VIX today: How to set up a call options ladder to protect your portfolio
Goldman Sachs Stock Today: Why This Iron Condor Options Trade Can Pay $165
The ANET Stock Call Option offers leveraged exposure with less capital