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

A sketchy chart

If I were long $SKX I would be focused on protecting the gains from this April move. There are going to be a lot of weak hands in this one now – chasers too – that won’t hang around once the Bear Raid begins.

Be prudent.

At least buy Puts if long.

SKX_B

– DM 11:40 AM CST

 

Risk Reversal Call Spread (RRCS)

I often receive inquiries on what a RRCS is so I thought I would use a current position in $PCLN to illustrate what it is. The acronym of RRCS stands for:

Risk Reversal Call Spread

The typical structure for this trade:

  • Long a Call Spread
  • Short Puts

Here is what I have for $PCLN in the submarine basket:

PCLN_F_2

– DM 1:00 PM CST

RSI as a trigger

part of the Simple Approach series

I reviewed numerous charts this weekend that have a similar characteristic with $PCLN: intensified buying or selling when RSI hits 30 or 70 respectively. Here is a daily chart on priceline.com to illustrate:

PCLN_RSI

If you are of the camp that history will rhyme for price then $PCLN is at a Buy signal today. If you are not of that camp, what keeps you from believing that this is a high probability trade?

– DM 9:55 AM CST

The Down Channel

During stock research this morning I noticed this well-defined Down Channel that has formed in $ITW:

ITW_D

Now that price has begun to arm wrestle the 200 SMA I will be watching for a move down to the $90.50 level. An ideal trade here would be a Put Ratio in my opinion.

– DM 10:05 AM CST

 

Earnings preview for Adobe and FedEx

Weekly charts

ADBE_B

I like the June 80/82.5/85/75 Risk Reversal Call Fly for an ADBE earnings trade (long the 80/82.5/85 Call Fly and short the $75 puts).

FDX_weekly

I have an existing position in FDX but for an earnings trade consider this:

Long the June 182.5/185 Call Spread
Short the June 177.5 Puts
Cost: $.20 credit
Takes margin

– DM 10:40 AM CST