MOS Put Sale

• stevenplace
• May 21st, 2009

Yep, the market is pulling back. Finally.
I guess we should panic.

Anyways, here’s the chart for MOS:

So we broke out of 50 about a week ago and the momentum has been fading and we’re pulling back. There’s quite a few moving averages that the price is above that are potential support, as well as our previous resistance around 50. If it breaks below that, we go back into the multi month channel and could chop around for a little longer.

Well if you’re still bullish on this chart and think that a pullback is healthy in this stock, then you could look at a put sale. Here’s the play I’m stalking, but I’m not yet in it:

Sell Jun 50 Puts for 2.50 or better

Will MOS pullback some more? Probably, so there will be a better price to get filled.

So you’ve got about a 70% chance of success, and it puts your basis at 47.50. If you’re successful and you keep all the credit, your return on basis is 5.2% in 30 days. Not bad if you can handle the risk.

Now this play is under the assumption that MOS won’t go down as fast as what the options board is pricing in. This play also has unlimited risk, so if you’re not comfortable with getting long straight stock, then you shouldn’t take this play.

So our TA on the charts says that 50 has a high probability of support, and the moving averages coming up underneath it should provide areas where buyers will come in with fresh capital. So fading the downward momentum makes sense on a technical level, and the option choice supports that technical thesis with a pretty nice monthly return.

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.

Tickers: mos

blog comments powered by Disqus