- Posted by Greg Harmon
- on September 29th, 2011
Trade Idea 1: Buy November 95/70 Put Spread for $4.80 and selling Weekly Puts each week for 67 cents
The idea is to reduce the cost of the November 95/70 Put Spread in a low risk way over time. Friday sell the September October 7 Weekly Put that costs closet to 67 cents. Thursday night that looks like the 90 or 85 Strike Puts. The Monday, October 10 sell the October 14 Weekly Put that is closest to 67 cents, and continue weekly until finally on November 14 you sell 7th time. The break even over the 7 weekly Put sale opportunities will be 67 cents per week. If you can afford the extra margin over the weekends, then move the sales to the previous Friday for a better execution. Factor in the commissions, so depending on you size and broker you may need to sell puts for 70 cent for example to break even.
Trade Idea 2: Buy January 20, 2012 70/40 Put Spreads for $3.60 and sell Weekly Puts each week for 22.5 cents
For this trade there are 16 weekly put sales reducing the exposure substantially. The October 7 Weekly 80 strike Put should get you more than 22.5 cents for the first sale.
Trade Idea 3: Do both Trade 1 and Trade 2, selling Weekly Puts each week for 45 cents for the first 7 weeks and then for 22.50 cents for the last 9 weeks
For trade 3 you will be selling twice as may puts for the first 7 weeks so you and average the cost down between the 67 cent sales and the 22.5 cent sales to 45 cents. This would likely lead you to start by selling the October 7 Weekly 85 Put.
You can get more aggressive some or all weeks and sell a tighter put to gain more premium. That aspect of risk management is up to you. I have included the freebie write up below to reference the resistance and support levels. I suggest you print this out and make a schedule for the sales to track you progress. At the November or January Expiry you will own the spread for free and can sell it for what ever it is worth. We can talk about rolling the strikes down along the way also to either enhance the performance or speed up the cost reduction process.
113 Reasons Why Netflix Is A Screaming Short….Still
Well maybe not quite 113 but at least 13. Netflix ($NFLX) stock had a bad day Thursday, falling nearly 11%. That was after rising more than $5.40 off of the lows. But it has also been a bad week, down over 12% and a bad month, down over 50%. In fact it has not had a good time since announcing a change in it’s pricing plan. I can read your minds now, “this is old news”, “you are late to the party”, “its down so far, tell me when it will bounce!” What if I were to tell you that even down over 62% the technicals suggest it might have a long way yet to fall. Let’s take a look at the charts on three time frames.
Netflix, $NFLX Daily Chart
On the daily time frame, above, the fall Thursday came after a breech of the 61.8% retracement of the long run higher. This picture shows the Relative Strength Index (RSI) in the teens ans flattening and the Moving Average Convergence Divergence (MACD) indicator improving. These support consolidation or a up move. What? This is supposed to be about the downside. but I did not say it would all be tomorrow. With the resistance at 127.50 above, it may retest there. That would be a great short entry. Why? First if you look at the rest of the chart the next level of support is at 100 from August 2010. Second, all of the Simple Moving Averages (SMA) have rolled lower and, third, are progressively crossing through each other. Fourth, this chart shows that the Measured Move (MM) comparing to the move from 210 to consolidation at 130, or $80, creates a target of 50 for the stock. That might be enough to convince you but I promised more. Lets look at the weekly chart now. Here the RSI is sloping lower and not quite as extreme , fifth, the MACD is still growing more
Netflix, $NFLX Weekly Chart
negative, 6th, supporting more downside. There is the support at 100 clearly shown again, so we can not add that, but the next level down of support, and reason 7 is not until 62.50. The eighth reason is that the SMA’s on this time frame are also all just starting to roll lower. Now moving out to
Netflix, $NFLX Monthly Chart
the monthly chart above shows the big picture and adds the last 5 reasons. Number 9 the monthly RSI is pointing sharply lower and number 10, the MACD has just crossed negative on this timeframe. Reason 11 is that now below the 61.8% Fibonacci the next test will come at the 76.4% or 78.6%, whichever you use, at 72.23-78.74 below. Number 12 is that the support below that Fibonacci space is not until 40. And finally number 13, after falling below the mid point of the Bollinger bands it now looks ready to test the lower band, near 40. Still want to look fro that bounce?
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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