The market rallied hard this past week, but has sold off early Monday, making this week a little bit more difficult to navigate. In the meantime, an options trader can still find possible candidates that look good no matter what happens in the market.
Monsanto (NYSE:MON) looks like one of those candidates. The stock has fallen from its 2011 high in late July and has been trading sideways for the last month between $63 and $71. Right now, the stock is at the high end of the range and should hopefully test the lower end of the range soon, with a nice target around $66.
If the market pulls in some, which it has so far on Monday, it helps a plan to buy put options on the stock. If Monsanto moves above $72, the trade can be exited to limit the loss.
The Trade: Buy the October 70 puts for $3.40 or less.
The long put strategy is pretty straightforward: The trade profits when the stock falls and the put premium increases as the stock moves closer �in the money.� The maximum profit is almost unlimited to some degree because MON can only fall to $0 and the maximum loss is $3.40 if MON finishes above $70 at expiration.
The spread can always be exited early for profit or loss.
No comments:
Post a Comment