Manitowic Diagonal Call Spread

In my last post, I mentioned doing some bargain hunting. All of the fundamentally strong stocks that I picked for a rally produced. The pullback to support for many stocks has generated some very nice technical entry points. I am going to highlight a new trade on Manitowic Company (MTW). Manitowic is fundamentally very strong company which is making money and growing at a good rate. The company is also in a currently strong industry group with neighbors such as Deere (DE), Caterpillar (CAT) and Joy Global (JOYG).

The price chart shows a gap down on the last earnings announcement at the end of January with a very powerful bullish run of almost $12 (22%). The stock has since pulled back to an old area of support and bounced nicely off the $55 price level.

On a technical side, the MACD has already rolled up and is heading for a zero line crossover. The Stochastics are also very low and expected to roll over any day.

Overall, I would consider MTW to be in a sideways trend since hitting the magical $55 price point back in October. For this reason and the current market conditions which may produce some more bearish days in the near future, I am projecting a bullish to neutral movement for MTW.

I have placed an order to buy the Jun 55 call option and sell an equal number of April 60 call options as a cover. This particular trade is called a diagonal bull call spread and will cost me a net debit of $4.40 if filled. The trade will be successful if the price moves up to or above $60 by the April expiration. The trade will be unsuccessful and closed if the price breaks and closes below the $55 support.

The power of this strategy is that the June option is less affected by time decay than the April option. This will allow my short position to make money even if the price moves sideways. As expiration gets close, I will have the ability to roll out my short position into May and even June for additional net credits to my account.

As always, please do your own research on any trade that you make in your own account. If you do not have the proper training or education, I strongly recommend that you find a top quality training program and read as many books on trading as possible.