from the desk of Dr. Terry F Allen

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A Me(h)T Trade

MetLife (MET) won’t get anyone’s juices flowing. It’s frankly a rather boring insurance and financial services company that’s been around for 158 years. But who cares … if we can make money on a trade, right?

MET reported earnings last week that beat estimates on the top and bottom lines. Hardly anyone noticed. Analysts were silent. There were no stories other than a dry listing of its key performance numbers. And the stock fell 2% the next day. Ho hum.

But MET is up 36% for the year, which is well ahead of the S&P 500’s 25%. After a swoon in June and July, the stock has been grinding steadily higher along the dual support of its 50-day and 200-day moving averages. The key is the 50-day (blue line in chart), which has allowed just three daily closes below it during the past three months. This trendline, which is rising slightly, sits at $61.10, which is above the short strike of our put spread trade. Thus, MET would have to pierce this support to hurt this trade. And the 200-day (red line in chart) sits at $61 to provide another layer of support. The last time MET closed below the 200-day was more than a year ago.

If you agree that MET will continue its slow ascent and stay atop its 50-day moving average line in chart), consider the following trade that relies on the stock remaining above $62.50  (through expiration in six weeks.

Buy to Open MET 17Dec 60 put (MET211217P60)
Sell to Open MET 17Dec 62.5 put (MET211217P62.5) for a credit of $0.75 (selling a vertical)

This credit is $0.04 less than the mid-point of the option spread when MET was trading at $64. Unless the stock rises quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $73.70. This trade reduces your buying power by $250 and makes your net investment $176.30 ($250 – $73.70) for one spread.  If MET closes above $62.50 on December 17, both options will expire worthless and your return on the spread would be 42% ($73.70/$176.30).

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I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

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