Moderna stock has bounced off its 52-week low but still looks incredibly weak and that could provide an opportunity for a bearish option play.
Traders who think Moderna stock will not reclaim the 50-day moving average any time soon could look at a bear call spread option trade.
A bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call.
The strategy can be profitable if the stock trades lower, sideways, and even if it trades slightly higher, as long as it stays below the short call at expiry.
A January-expiry bear call spread on MRNA stock using the 90-95 strike prices can be sold for around $0.95.
Traders selling the spread would receive $95 in option premium, which is also the maximum possible gain. The maximum loss would be $405.
Max Profit If Moderna Falls Below 90
The spread will achieve the maximum profit if Moderna stock closes below 90 on Jan. 19. In that case, the entire spread would expire worthless, allowing the trader to keep the $95 option premium.
The maximum loss will occur if MRNA closes above 95 on Jan. 19, which would see the premium seller lose $415 on the trade.
While some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy, and you always know the worst-case scenario in advance.
A stop loss could be set if MRNA trades above 90, or if the spread value rises from $0.95 to $1.80.
Because this is a bearish position, traders who think Moderna stock could move higher from here should not enter this trade. The position starts with a delta of -9, meaning it is roughly equivalent to being short 9 shares of MRNA.
Moderna Not A Leading Stock
According to the IBD Stock Checkup, Moderna stock is ranked No. 165 in its group and has awful ratings. It has a Composite Rating of 6, an EPS Rating of 4 and a Relative Strength Rating of 9.
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
