This company in the agriculture sector, and its competitor is ADM.
Its fundamental is not the best,making money last quarter, but growth rate is negative.
This trade is based on technical indicators.
We have buy signals from MACD, RSI and 5ema and 20ema. It also crossed 200ma and 50ma on 11/18.
The volume on 11/18 is more than 2 times of average volume.
Support is around $55, and first resistance is $65 and second resistance $70.
Price was around $62 when I spot it because the volume of its DEC 65 call was usually high (open int 2500, volume 6219). Jan 70 call volume is also high.
It indicates that the expectation is for the stock to go up.
Trade selection: This is bullish trade. I could have chosen bull call calendar (BTO April 10 strike 65, and STO Dec 09 strike 70) delta is 31.
But I chose a trade with higher delta since is a short term momentum trade:
STO Jan 60 put at 2.87
BTO Jan 55 put at 1.35
BTO Jan 70 call. at 1.45
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Delta: 43
Net credit $0.07
Maximum risk : $4.93
Maximum profit: unlimited.
Break even $60.
Primary exit: Close half to 2/3 positions at $65.Let the rest run.
Secondary exit: If the price is slightly below break even, short call first (synthetic covered call).
If too bearish, long put also. so it will becomes synthetic collar.
Posts
Very interesting idea. Using a bull put to reduce your cost instead of synthetic collar ( LC, SC and LP ).
ReplyDeleteWhat will you do if the stock collapse suddenly to <60?
If the stock collapses suddenly, will need to buy protective put, and change the call to bear call. In the beginning the trade will be a loss.
ReplyDeleteClose the trade at $0.2 for small profits. This stock is weaker than the SPY today, and shows sign of weakness.
ReplyDeleteJoseph,
ReplyDeleteMy gut feel is that it is still too early to exit.
You have a bull put at 60 which will most probably expire in Dec.
Also, the bullish trend for BG and overall for Agriculture. I have pretty big positions on POT and is not getting out yet despite pretty good ROI.
I agree the exit might be early. The trade I set up was good for 2-3 day quick profit. Since I did not get it, I exit the trade. My expectation that the stocks in the agriculture sector will pull back a bit after the big rise in the last week. I'll enter again with another set up after the pull back.
ReplyDelete