McDermott Intermational (MDR) operates in three business segments: Offshore Oil and Gas Construction, Government Operations and Power Generation Systems. The assumption with a play in this sector is that even though oil prices may be peaking that there is definitely reason to construct oil rigs to drill offshore and in the arctic and to build refineries. MDR reports earnings around August 12th.
Our goal is to sell the August 50 put for $1.00 each. The max return on the position is 20%. That is based upon the initial proceeds of $200 on two contracts divided by the initial cash requirement. The actual return calcuation isn't determined until the position is either closed out or expired. The chart below shows some of my technical toys that I use to determine support and resistance points. The Bollinger bands are determined from the 21 day Exponential Moving Average (EMA) rather than the default 20 day simple moving average. As you can see the lower bollinger band is at $54.95 while the upper is at $65.11. The lower Bollinger band is near the strike price which serves as some of the reader's preferred risk management price level. I prefer to use technical price levels for risk management. It should be noted that MDR has tried two days in a row to close above the 8 day EMA (magenta line) and failed. There is resistance at 60.03 from the 21 day EMA.
Looking below there is a similar chart but with long term moving averages. The solid lines are the 50 (blue), 89 (grey), and 200 (red) bar simple moving averages. The dashed lines are the 50 (orange) and 200 (magenta) bar exponential moving averages. Notice that MDR came down agressively to the 200 SMA and bounced up to close above the 89 day SMA. Last Tuesday MDR extended all the way to almost fill in the May gap at 54.21. MDR's price almost touched the 200 EMA as well. Since the gap wasn't filled completely the technical risk management level will be at 53.94 (200 day EMA) or the 54.21 gap, whichever is less. The cost basis stop is also right at $54. So there is a lot of coincidence levels near $54. As mentioned in the above commentary MDR has resistance at $60. Similarly the moving average chart has resistance at $59.69 from the 50 day SMA and EMAs and also at $60.13 from the lows from late June when the stock was finding support at the 50 day EMA. At run up to $60 would prompt me to sell the $65 calls.