Lessening the Pain

When you strike out badly on a trade like Check Point Software (CHKP), you just have to hope you have something like United Rentals (URI) standing behind it to get the job done. I did get nervous about CHKP after seeing Fortinet's (FTNT) report, so I wasn't overly optimistic or enthusiastic coming into the morning. The whole sector just seems to be struggling. It should create opportunities in the security sector; however, I could see another 5% downside before things start to stabilize. The only adjustment I am making with CHKP is to loosen my collar as it feels a bit tight with this play.

URI, on the other hand, is starting out well with a little normal profit taking coming in after the open. Since then, shares have pushed higher, turning this little lottery ticket into a big enough winner to take the pain away from CHKP. There are three approaches here. First, I could simply hold the spread and look for the maximum cash-out possibility coming this Friday, but that maintains all the risk of the original trade, albeit with much more leeway in price. Second, I could sell the trade or at least half the trade to reduce or eliminate risk. The spread can be sold in the $1.60 to $1.70 area, so a decent dollar profit on the position. A third possibility is to sell the October $37-$38 call spread for around $0.60 against the spread. This would bring the overall trade basis down to zero and create an October $35-$37-$38 skip-strike-call butterfly. Now with this, the skip-strike butterfly, the trade could be worth $2 if URI finishes Friday at $37. It is still worth $1 at $38 or above, so with a zero-cost basis, this profit of $1 is the same as what I would make selling right here. I don't have any risk capital in play, but I do have profits at risk. Still, this is my preferred approach, since a minor pullback in shares offer significant upside and I will still net the same profit at $36 or $38. This is my move....97 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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