Long Put Spread on Mosaic

Here’s an option trading tip or suggestion from an independent investor or market observer that was making an appearance as a guest contributor on The Street.

The Top Gun Optionstrade team is bearish on The Mosaic Co. (MOS) in our Intermediate Model Portfolio.

Target: MOS trading at $55.60

Commit Criteria: We’re seeing a very common chart pattern across the board as the broader market is hitting overhead resistance. That pattern is a rally to a strong resistance level on thinning volume.

Tactic: Long put spread (bear put spread)

Tactical Employment:

  • Buy to open 21 November 52.50 puts, and
  • Sell to open 21 November 47.50 puts,
  • As a spread
  • For a net debit of $1.30
  • Maximum risk = $1.30 per share; $130 per spread
  • Maximum reward = $3.70 per share; $370per spread
  • Break even point = $51.20 if held till expiration

We’re going OTM (out-of-the-money) again looking for a pickup in volatility.

Follow TheStreet on Twitter and become a fan on Facebook.

Midcourse Guidance:

Eject level: If the trade loses 50% of its debit, then we will sell the spread to close the trade.

If the stock breaks above $61.90, then we close the trade.

Profit exit: Sell the spread to close for $2.60, which is a 100% return.

Per our trading standard operating procedures at Top Gun Options if the commit criteria change, we’ll close the trade.

Threats to success: A real resolution in Europe, or extremely strong earnings here in U.S.

Exit: Sell the November 52.50 puts and buy the November 47.50 puts, as a spread, for a net credit.

Firing Line: this bear put spread will take advantage of the overall malaise in the market while the world holds its breath on next steps…which we believe will be a fall.

See TheStreet.com for the original post

Option Trading Secrets

Leave a Reply

Your email address will not be published.


This site uses Akismet to reduce spam. Learn how your comment data is processed.