Setting a Mouse Trap
- Posted by Greg Harmon
- on June 12th, 2014
Are you long term bullish but not looking to add to your portfolio while the broad market is pulling back? There’s not an app for that but there is a trade for it. What you want to do is set a trap. One name that has been good on a long term basis and can be used as an example is Disney, $DIS. So how do you set a mouse trap?
The chart above shows the trend higher since October along with the consolidation under the support/resistance zone from 82.20 to 83.20 from February until 2 weeks ago. The stock broke the resistance zone higher and moved up leaving many unhappy. If you were one of them then look at the rest of the chart. The rally since October launched on a move off of consolidation at the confluence of the Simple Moving Averages (SMA), one of them the 100 day SMA. Since then it pulled back to the 100 day SMA 3 times and found support to move higher each time. That 100 day SMA is currently sitting at about 80. Also notice that the consolidation zone was also important several times as resistance before it moved higher. The momentum indicators are falling but the RSI remains in the bullish range and the MACD is still well above zero. If you are one that laments not being involved in this stock here is your opportunity.
One way to get in would be to buy a half size position in this support/resistance zone and then also sell the June 27 Expiry 80 Puts short in half size for about 30 cents today. This strategy gets you involved in case there is a reversal at the support/resistance level and would give a 81.25 basis if to closes at 80 on June 27 Expiry Expiry.
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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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