MRNA Stock Drops But Options Are Cheap; Play The Downside With This Debit Spread | IBD

TL;DR

Use a bear put spread strategy to profit from potential downside momentum in Moderna stock.

Transcript

foreign Traders it's Rachel here with your option of the day for Tuesday April 18th for today's trade we're looking at a bare put spread in covid vaccine maker moderna taking a look at the stock on Market Smith moderna had a rough day yesterday falling over eight percent in heavy volume shares bumped up against resistance at the 200-day line and th... Read More

Key Insights

• 💦 Moderna stock experienced a significant drop, suggesting potential downside momentum.
• 🌸 The company is expected to report a loss in the future, which may contribute to a further decline in the stock price.
• 😘 Implied volatility in Moderna stock is currently low, making it suitable for a debit spread strategy.
• 👻 The bear put spread strategy allows investors to profit from downside momentum while limiting the risk.
• 🤑 It is important for options traders to practice with a virtual account before risking real money.
• 😚 Options trading can be complex, and investors can lose 100% or more of their investment.

Questions & Answers

Q: What is a bear put spread trading strategy?

A bear put spread involves buying one put option and selling a lower strike put option. The goal is for the stock price to stay below the lower strike price to realize maximum profit.

Q: How much does the bear put spread in Moderna cost?

The bear put spread in Moderna, using the July 21st expiration, costs around $125 in premium, with a maximum risk of $375. The breakeven point is $123.75.

Q: What is the maximum profit and loss potential for this trade?

The maximum profit for this trade would occur if Moderna drops 16.65% between now and the expiration date, July 21st. If both strikes are above the stock price, the maximum loss of $375 will be realized.

Q: Should a stop loss be set for this trade?

It is not recommended to set a stop loss for this trade. The trade will either work or not. It is important to size the position appropriately and consider the possibility of a full loss.

Summary & Key Takeaways

• Moderna stock experienced a significant drop of over 8% in heavy volume, indicating potential downside momentum.

• The company is expected to report a loss in 2023 and 2024 after strong earnings in 2021 and 2022.

• Implied volatility in Moderna stock is currently low, making it a suitable candidate for a debit spread strategy.