In our current bullish market, today provided a brief pause in the market’s strong rally since the election.
CMA is part of the financial sector which has been one of the strongest since our election. As a contrarian trade, we see that CMA has been in a very strong bullish trend, but price action has starting to show a possible top. Coupled with a very high valuation, poor analyst ratings and overbought levels, we believe it may struggle to continue higher and we look to buy a March 67.5/75 Put Spread for $2.99 per contract. CMA’s implied vol currently sits at its 5% percentile, providing a good opportunity to buy debit spreads.
This strategy profits if CMA ($103.44) stays below $72.01 by March expiration (48% probability). Risking a max of $299 if CMA ($72.55) was to close above $75 by expiration.