Cal-Maine Foods, a major producer of eggs, has been in congested and sideways action but is poised to be a performer as sticky inflation holds a grip on grocery shopping.
Eggs are sure to continue to be a staple choice for protein in the shopping basket. For this reason, we will look favorably at the chart for investment and option income opportunities.
As the CALM stock chart shows, it sits in a range of motion between 53 and 60. This will give us the parameters for our trade that performs well — the short iron condor — and the combined use of the short put to allow us to acquire this if it dips into favorable spots.
As often in these uncertain spaces while we wait for upward trends to resume, we make money while we wait.
Strategy Works Well For Sideways Trend
First, set up the short iron condor with a $1.15 credit.
- Sell to open the CALM May 19 monthly 62.5 calls, and buy to open the CALM May 19 monthly 65 calls
- Sell to open the CALM May 19 monthly 52.5 puts and buy to open the CALM May 19 monthly 50 puts
Second, the short put at a $1.05 credit:
- Sell to open the CALM 19 May monthly 52.5 puts at $1.45 credit
Together, these two positions will give us a custom formation and the total credit will be $2.20.
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Trade Exploration & Rationale
Start by identifying the key chart levels.
Support sits at 52.5, where all the long-term buyers have been picking up the stock. And resistance shows just above 60.
The stock appears to be forming a cup base.
Possible Scenarios
What could happen:
- The stock moves within and potentially beyond the range but returns to rest above 52.5 and below 62.50 by expiration. This yields the full profit.
- The stock moves into our 50% profit line — when the position is worth around $1.15 — and I exit the trade.
- Stock rallies and moves over 62.5 with volume for more than three days. This means we must exit because the chart is in breakout.
- Stock fades and moves below 52.5 with volume for more than three days. This means we must exit as the chart is in breakdown.
For the short put, we can take delivery of the stock if the chart drops below 52.50 near expiration, and we will acquire the stock at the tidy price of $50.25.
And if the stock stays above $52.50, we can keep the entire gain into expiration.
You can find Anne-Marie Baiynd on Twitter at @AnneMarieTrades and of course at Investors.com. Just search for her name.
