A “to fade” trade in The Men’s Wearhouse

I keep a small list of stocks that I want to short in a watch-list called the “to fade” list. The earnings reaction in $MW was positive – due to news about potential sale of K&G unit – but the moved seemed overdone in my opinion.

There are certainly several ways to approaching a short position on a stock – including just buying a put spread for example – but I elected to do the following:


Let me break this down for those that don’t quite follow what I am doing here:

  • I am short the stock
  • I am long the April 35/37 Call Spread
  • I am short the April 33 Put
  • This trade is the opposite of being long stock with a Collar. This trade above is short stock with a Bear Collar.

Here are a few scenarios to lay out how this trade can result in:

Scenario #1

Price moves to $32 at April expiration. If this occurs, the owner of this Put will exercise it and my short stock is called away. My gain is capped at $2 ($35-$33) plus/minus any debit/credit from the initial trade. The April 35/37 Call Spread expires worthless.

Scenario #2

Price recovers to $36 at April expiration. If this occurs, I would sell the April 35 Call for full value, let the April 37 Call expire (keep premium collected), and close the short stock position. The short April 33 Put would expire (keep premium collected).


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