3M Stock Today:Why Does A Bear Call Spread In MMM Stock Give Traders $130 Immediately? 3M (MMM) fell below the 50-day moving average again last week and continued to fall on Tuesday. Shares also finished at the day’s low. Such negative movement opens.
3M stock is also displaying modest relative strength. The St. Paul, Minnesota-based industrial behemoth and Dow Jones Industrial Average component is facing thousands of lawsuits from towns and public water supplies across the United States.
3M Stock Today: Why A Bear Call Spread Now
The technique can be beneficial even if the stock moves lower, sideways, or slightly higher than the short call at expiry.
On Tuesday, a bear call spread on 3M shares employing call options with expirations on July 21 and strike prices of 100 and 105 was trading at $1.30.
As a result, traders selling the spread in 3M shares would get $130 in option premium per contract set. That is the biggest possible profit. What is the maximum loss?
The spread will make the most money if MMM closes below 100 on July 21, at which point the entire spread will be worthless. This occurrence permits the trader to keep the whole $130 option premium.
The premium seller will suffer the most loss if 3M stock finishes above 105 on July 21, resulting in a $370 loss on the deal. While certain option trades carry the danger of endless losses.
Where To Set A Stop Loss
If the spread value climbs from $1.30 to $2.60, a stop loss might be placed.
Because this is a negative position, traders who believe 3M stock will rise from here should avoid entering this trade.
The trade begins with a delta of -29, which equates to being short 29 shares of MMM stock.
3M stock is rated No. 17 in its industry, with a Composite Rating of 23, an EPS Rating of 49, and a Relative Strength Rating of 19.
Please keep in mind that options are dangerous, and investors can lose their whole investment.