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.
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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.
