A Look at Bullish Option Strategies in NIO

I often ask my students, “are the odds on your side?” What I am referring to are the odds of support and resistance holding and not letting the underlying move through that level. In my estimation, and when the market is not trending in a big way higher or lower, potential support and resistance will hold approximately 70% to 80% of the time.

Works on All Time Frames

I look through charts every day for my own trading as well as for MTM’s daily group coaching class. The more you do this yourself, the better you will become at recognizing certain patterns. Here is a recent example for Nio Inc. (NIO), which we have been watching in class for about a month now.

NIO Example

As you can see in the hourly chart of NIO below, every time over the past month the stock rallied to around $64, it met some resistance, then stalled and eventually moved lower. And every time the stock dropped into the $56 area, it stalled and eventually moved higher. As the chart shows, the stock just bounced off the $56 potential support level. With the odds on our side, we can consider potential bullish option strategies.

Potential Bullish Strategies

In group coaching class, we discussed selling some put credit spreads just below the potential support level and buying some call debit spreads right around the potential support level. The credit spread would have better odds for success because the stock would need to just close above the potential support area and the sold strike for maximum profit at expiration. But the risk/reward would not be as good as the vertical debit spread, which would most likely need the stock to move higher to profit. Always a trade-off.

Trust Yourself and the Support and Resistance

The more you practice and look for these levels, the better you will become as a technical analyst. The important thing to remember is that you need to trust yourself as well.

John Kmiecik, Market Taker Mentoring

Trader Education