Marriott International is the leading stock in the Leisure-Lodging industry group and is currently above rising 21-day, 50-day and 200-day moving averages.
According to the IBD Stock Checkup, Marriott stock has a Composite Rating of 96, an EPS Rating of 78 and a Relative Strength Rating of 86.
Investors who think MAR stock will stay above the 21-day moving average for the next week or two could look at a short-term bull put spread.
To execute a bull put spread, an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.
Selling the April 14 put with a strike price of 165 and buying the 160 put would create a bull put spread.
This spread was trading on Friday for around $1. That means a trader selling this spread would receive $100 in option premium and would have a maximum risk of $400.
That represents a 25% return on risk between now and April 14 if Marriott remains above 165.
Risk If Stock Closes Below 160 At Expiration
If Marriott International closes below 160 on the expiration date, the trade loses the full $400.
The break-even point for the bull put spread is 164. That's calculated as 165 less the $1 option premium per contract.
This bull put spread trade has a delta of 11, which means it is a similar exposure to owning 11 shares of Marriott stock. This exposure will change over time as the stock price moves.
In terms of a stop loss, if the spread increased in price from $1 to $2, I would consider closing early for a loss, or if MAR stock price closed below 165.
With earnings due in mid-May, this trade should have no earnings risk, unless the international hotel chain gives early guidance.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
