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what's up everybody today I'm gonna share with you a trade idea and a lesson about vertical spreads before I get into it I share eight to twelve trades every Sunday with my membership and then on Monday we get together for a live class I invite you to try a free week head to the link active day trader com /you free try a free week no credit card down see if it's a good fit for you let's get into the trade micron as many of you know the stock market is looking great it recovered it does seem like a deal with China is getting close Financial Times ran an article talking about one of the pieces of the puzzle for a tariff resolution now they're talking about micro loosening things up regulatory for issues that they've had with chips with micron technology this is interesting because if micron gets a favorable benefit from a tariff resolution we're gonna see a very very bullish move right if we look at what tariffs have done to micron it's just pummel the stock stock at as high as 65 almost cut in half now it bounced if we look technically technically I have a honest a weekly 200 period moving average 100 period moving average traded down to it's 200 up to it's 100 you're gonna find some support here for sure 41 45 but I'm not looking at this from a technical standpoint I'm looking at this that stock markets doing great this whole tariff thing it's all politically motivated tariffs are coming off so therefore all the moves that happen before tariffs will most likely reverse especially if there's an earmarked agreement cut out for micron this is a name that we want to be alone the trick with options is how do we get long do we want to just buy the stock now way it's just too expensive why deal with it why just buy the stock or better off using the options so now we need to look at what expiration would you want to play well you could look at the March the problem with March is that there's only 21 days I want more time but microns earnings is estimated for March 20th so if you get yourself in the March expiration you're not going to have the time that the earnings are going to bring the earnings are a catalyst for a movement right the company gets in front of a whole bunch of analysts they field questions the street gets information so they could better value the stock that's a reason for the stock to move for me not only do I think the stocks gonna move I think the stocks a little higher especially if there's a resolution on tariffs it moves higher but just maybe there's something special carved out for micron so now if I want to be in April 55 days that gives me a little bit more time than March but it also gives me that ernie's catalyst how do we play it again we don't want to just buy the stock too expensive we don't really want to do a put credit spread I guess you could I don't love that put credit spread we're taking in a credit we're risking more than we're gonna make not my preference for me I'd rather go upside call buying but the upside calls in April to me are a little pricey so here's what I think is the best way to play this name I think we should consider a vertical spread and here's how they work and here's how to consider what price and what trade to actually do so last trade 42 it's 42 14 but I want easier math for me 45s let's say the 45s are a dollar 90 the 46 is let's say they're a dollar 50 again Jonathan wants first presentation the 47s let's call them a dollar 30 the 48 let's call them a dollar the 49 s let's call 80 cents and the 50s will cost 65 cents so 80 cents 65 cents now I would look to do in an upside vertical call debits bread so you could do the 45 against the 50s if you do this you're buying the 45s and you're selling the 50s the cost of this would be a dollar 90 minus 65 cents which is a dollar 25 now if you do this trade your risk on a 1 lot is $125 and your maximum reward is 5 the difference between the strikes - a dollar 25 so your reward is 375 dollars by doing the trade this way and again this would be buying the 45s and selling the 50s you can go higher let's say you go 48 50 your risk in this is going to be buying for a dollar selling for 50 cents your risk is only 35 cents or a 1 lot would be 35 dollars of risk if you do a 10 lot again it's 350 I think you guys know that your reward is 50 minus 48 - dollars - dollars - 35 cents is going to give us a dollar 65 or a hundred and sixty five dollar reward if we are correct so two different ways to handle this trade what I want you to see is 48 50 is a little bit more speculative right because we need the stock to get higher in order for us to make money but the rewards also greater here we're risking $35 to potentially make 165 you can risk 350 to potentially make 1650 the lower a little bit more of a conservative play you're still getting a three to one risk reward for me this is way way way way way way way better than just buying the outright stock here you get leverage here you get a fixed amount of risk there's no surprises you know exactly what you're getting into before you do the trade so this is what I like any one of these spreads make a ton of sense for me when I'm doing these verticals I wouldn't do a vertical that's only a dollar wide like the 46 is by 47 s just not enough meat on the bone if you do the 46 47 do it with me you're risk buying a dollar fifty selling a dollar thirty you only have twenty cents of risk but you could only make the difference between the strikes less twenty cents that's the trade that I like again I share trades like this every single Sunday night this video is being made on Friday I send it out to the members on Friday I'll post it on YouTube Friday after the clothes hope it helps any questions email me directly or just leave a comment below I'll reply to each one of your comments if you want to email email support at active day-trader thanks good luck let's get these tariffs off the table let's get micron trading above 50 bucks thanks guys
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