Shares of SUN Setting

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by Steven Sarnoff

The power of our Superleverage method is shining as shares of SUN (Sunoco) are setting back.

On Sunday, August 21, 2016 I recommended that our Options Hotline subscribers buy the Sunoco September $30 put for $50 or less.  That recommendation was triggered at the opening on Monday, August 22, 2016 for $40, with SUN shares trading at  $30.72.

We call this an “el cheapo” option play, because each option gives you the right to control 100 shares of stock for less than $100.  The reasons the option was inexpensive are that, with SUN at $30 or above, the option had no intrinsic (real) value and there wasn’t much time until expiration (the third Friday in September).

I selected that particular option, because I felt the rally in SUN was running out of gas, right at resistance (supply) and I saw signs in the character of the behavior of price movement which indicated shares were ready to roll down toward underlying levels of support (demand).

We targeted support around $28 per share.  With SUN at $28, each $30 put option has $200 of real value.  If SUN is at or above $30 on the third Friday in September, each $30 put will expire worthless.  That was our traders’ risk.

As you can see on my daily candlestick chart below, SUN dropped to the end of August.  The recommended option traded as high as $88, +120% in 9 days, on a 3% move in the underlying shares, with an always known and strictly limited risk! 

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Shares then found some support from the 50-day moving average and bounced.  The option traded as low as $25 on September 7th.  A stronger US dollar weighed on oil and shares resumed their move lower, helping the option close Friday’s session back “in-the-money.”

If they haven’t already, our traders will be looking to close out their positions in the week ahead.  Not all our recommendations go down to the wire like this.

If that’s the type of options action you’re looking for, subscribe to Options Hotline today to see how, as we approach our 28th year of publication, we keep our readers a step ahead of the crowd.

 

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