3M Stock Today: Why Does A Bear Call Spread In MMM Stock Give Traders $130 Immediately?

3M Stock Today: Why Does A Bear Call Spread In MMM Stock Give Traders $130 Immediately?

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 up the possibility of a bearish spread bet in 3M shares. Depot stocks and analyses the MarketSmith chart for us here.

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.

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As a result, traders who believe MMM will not retake the 50-day line in the next weeks could consider a bear call spread in options. The 50-day moving average for 3M stock is now 101.17.

A bear call spread includes selling an out-of-the-money call and purchasing another out-of-the-money call.

3M Stock Today: Why A Bear Call Spread Now

3m stock

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. That spread was essentially unchanged during Wednesday afternoon trade.

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? It amounts to $370 in total. Take the difference between the two options, or 5, then multiply it by 1.3 to get 3.70. $370 is the result of multiplying by 100.

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, a bear call spread is a risk-defined strategy in which the worst-case scenario is always known in advance.

Where To Set A Stop Loss

3m stock price

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.

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.

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