Vertiv had a great day on Friday, rising over 2%. So today, we're looking at a bull put spread on Vertiv stock.
Vertiv stock got added to Leaderboard as a one-quarter-sized position on Oct. 3.
For Vertiv, there is strong support just above 95. A bull put spread could work well for traders that are willing to bet that Vertiv stock will stay above 95 for the next few weeks.
As a reminder, a bull put spread is a defined risk strategy, so you always know the worst-case scenario in advance. This type of trade will profit if VRT stock trades sideways or higher and even sometimes if it trades slightly lower.
Vertiv Stock Today: The Bull Put Spread
With Vertiv stock trading around 105 at the end of Friday's session, if we use the Nov. 15 expiration, we could sell a 95-strike put option and buy a 90 put for around $1.50, according to recent trading. Selling this spread would generate roughly $150 in premium per set of contracts with a maximum risk of $350.
If the spread expires worthless that would produce a 42.9% return in six weeks, provided Vertiv stock holds above 95 at expiration. The maximum loss would occur if Vertiv stock closes below 90 on Nov. 15, in which the premium seller loses $350 on the trade. The break-even point for the trade stands at 93.50, calculated as 95 less the $1.50 option premium per contract.
I would set a stop loss if the loss is equal to the amount of premium received, at $150. Sticking to this stop loss level will help avoid large losses if the trade goes south.
Excellent Ratings
According to IBD Stock Checkup, Vertiv stock ranked 2nd in its group. VRT scores a Composite Rating of 97, an EPS Rating of 98 and a Relative Strength Rating of 97.
Vertiv is due to report earnings in late-October, so this trade would have earnings risk if held to expiration.
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 X/Twitter at @OptiontradinIQ
