Many top earnings winners pulled back during the two-day Brexit selloff. I want to initiate a bullish position in Applied Materials which stood out after blowing away earnings estimates. While I like the stock, I believe that there may be limited upside in most stocks, so I want to initiate a buy-write, which sells expensive options.
To execute this trade, you need to:
Buy AMAT Stock,
Sell to Open the August 23 Calls.
As is always the case, you can sell one call for every 100 shares of stock you buy. Or five calls for every 500 shares you purchase.
For example, you could buy AMAT stock at 23 and sell August 23 Calls for 1.00 (the math behind this net price is 23 minus 1 equals 22). I expect you will get a better price than I'm recommending.
The most you can make on this trade is $1.00, a yield of 4.54% in just over a month if AMAT closes above 23 on August expiration.
If AMAT is unchanged on August expiration, we will have created a yield of 4.54%.
Breakeven on this trade is 22.
The most you can lose on this trade is $2200 per buy-write if AMAT were to go to zero.
My mental stop on this trade will be at 20.