Walt Disney is on a wild Roller Coaster

DIS_D

The 200 SMA is Rising from below and we should see price test it very soon. The RSI is under 30 but there still hasn’t been any convincing floor put in the stock yet in my opinion. The MACD remains in a free-fall.

This breakout back-test looks to have a target of $102.50 so one could consider buying a Put Ratio. Why? For these reasons:

  • capture any additional short-term weakness
  • If the “meat” of the Put Ratio gets ITM then you still have the lower short Puts that you can manage (you will get a bounce eventually so getting Put stock at that strike is just fine)
  • lower cost than just buying Puts outright (depending on structure, can get a credit)

An example structure:   long the August 28 weekly 105/102 Put Ratio. Cost is under $.30 and can make $3 if at $102 on expiration.

– DM 9:40 AM CST

The Collar Put Ratio starring Facebook

One of the Option strategies I utilize for protecting a position short-term is the Collar Put Ratio (CPR). Here is what a CPR looks like using the Fab 5 position ($100 Roll) for $FB as an example:

I am long stock at $90.33 (since 7/16)

Here is the CPR:

I am short the August 07 weekly $95 Calls
I am long the August 07 weekly 95/87.5 1×2 Put Ratio (for every 1 contract that I am long the $95 Put I am short 2 $87.5 Puts). This takes margin

So let’s look at a Daily chart to see how this trade looks post-Earnings:

FB_G

The black horizontal line represents the $95 level which is key for the Option portion of my trade. The long $95 Puts are ITM (in the money) so the long stock is protected well so far.

– DM 9:30 AM CST

The rhyming market

An important chart to watch at all times is the NYSE New Highs-New Lows. This chart will give you a quick view of the overall price activity for the NYSE and will clearly make visible the extremes for which the market moves.

We are at an extreme now:

$NYHL_B

Weekly chart

If you believe that history repeats – more accurately rhymes – then now is the time to create a Buy list.

 

– DM 9:40 AM CST