Baidu Incorporated (NASDAQ: BIDU ) has been on a strong upward move as of late. There hasn’t been a real dip in this stock since the beginning of 2013. In July 2013, Baidu received an even bigger boost with a better than expected earnings report.
Now it looks like Baidu is setting up to breakout to new highs. Shares are a bit overbought here, but the momentum behind this stock could propel it past this 170 resistance.
With it being overbought, traders don’t want to come in and just buy calls. There could be a slow down (sell off) at this resistance before it breaks out to new highs. With a clearly defined resistance and support coming up from the bottom, traders want to sell puts in the December expiration. This will give a nice return and the ability to play this stock if it breaks out or if it just sits there and churns.
The options we are looking at are the 150 puts for December. The 150s will give us a support level to insure our position remains profitable. We are going to sell these puts for a 0.70 credit for a five percent return.
Traders probably won’t hold this play until expiration unless Baidu takes off over 170. Ideally, traders would like to take it off next week and collect a majority of the credit.
Adam Beaty is more than just your typical options strategist. His passion for business and his entrepreneurial mindset have taken him on a stock trading adventure. Starting with only $500 in his portfolio, Adam began to visualize his dream. Already ‘hooked’ on the stock market and the charts they produced, he further developed a unique awareness of a niche market, options, and the infinite plays he could run with them. His work with weekly options earned him recognition in the Wall Street Journal at the age of twenty-four. After receiving dual majors in Finance and Marketing, and graduating Magna Cum Laude, Adam continues to study the market, pour through the charts, paying attention to the smallest details that may have an affect as he looks for the next big setup! “Adam Beaty of Houston recently started selling weekly put options on Amazon.com Inc. “With the weeklys, everything is a little bit cheaper,” he says. The downside, he says, is that he has to take on a little more risk. Under his previous strategy of selling monthly put options, he would be obligated to buy Amazon stock, currently trading at about $148, only if the stock dropped by about 17%. With weekly options, he figures he would have to buy if the shares fell about 6%. “It’s just good for the extra money,” says the 24-year-old, who helps run a commercial pest-control business.” -Wall Street Journal
Read more: http://www.benzinga.com/trading-ideas/long-ideas/13/12/4124370/baidu-ready-to-make-new-highs#ixzz2mzMv4RXM