I have done many reversed collar over the past 3 weeks. All of them were profitable.
Today, I initiated another reversed collar and it serves as an example on how I trade on bearish bias.
I shorted LVS today at 28.3. At the same time I sell a Sept 28 SP at 1.65.( slight OTM ). This is a synthetic put. It is the reverse of a covered call.
Normally, I start most of the time with a synthetic put or sometimes a straight short on the stock before adding the SP once it hits support. I will add protective call if it it reaches close to my cost, making it a reversed collar. I will do this only if I believe the longer term direction is still down. If not, I will take a minimum loss.
My cost position is 28.3+ 1.65 = 29.95. That means that the stock has to go above 29.95 on expiration September before I lose money.
PE: My return of the trade over 5 weeks is: 6.9 %.
Looking at the chart, the stock hits an all time high of 29.5 on 8/5 and finish lower on close with a DOJI. The next few days, the stock was testing the upper channel resistance. On Wednesday, with the general market decline, the stock went down 26.96 confirming the downside direction of the stock.
However, today there was an analyst upgrade based on projection that the Marina
Sands project in Singapore will be profitable. LVS went up more than 5%. For me, this is a wonderful opportunity to short the stock. I expect the stock to go down over the next few weeks with the technical damage done on Wednesday. It should be stagnant or down in the next 3-5 weeks.
SE: if the stock hits above 29.5 and Wednesday decline proves to be a blip and the bull continues into end of this month, I will close the trade with a some loss.
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I adjusted the trade today. It has gone bullish and exceeded my cost of 29.95.
ReplyDeleteFollowing are the possible adjustments:
1. Get out with a small loss
2. Add a protective call and make it a collar if I believe that longer term the stock is still down.
3 Roll the put up if I believe the trend will be stagnant or slightly down by Sept.
I am taking action number 3. I think the stock is bullish but the market should be down next month. Thus the stock will probably stay around 30 or 31.
I bought back Sept 28 short put for .87 and sell a Sept 30 SP for 1.63.
I get a net credit of .76.
If the stock stay around 30 or below, I will still make some money despite being wrong.
If the stock breaks up above 32, the will close the trade and take the loss.
Will keep it posted.