Well, it's different because of the wave count folks. If you'll notice, I have not been going on an on about CMG lately. I've been letting it do its 2nd wave sucker's bounce (or so I model it as such at this point). Now it will either prove my model is correct or it will tell me to rethink. As you can see, the first wave down broke both the upper and lower rails. That is not usual. Usually it takes the 3rd wave to do this but in this case 3 of 1 was all that was needed. It speaks to the coming weakness in these shares. I expect the 3rd wave drop off to be dramatic. This makes it a good candidate for put buying.
I like the Jan 15 $350s which are now $3.70 at the bid and $4.20 at the ask. This is at a time when the VIX is at ridiculous "we don't need no stinking insurance" lows. When VIX skyrockets, so will the premiums on these puts as everyone scrambles to buy downside protection on their leveraged CMG shares.
2 comments:
Hey Captain,
I'm in on the CMG $4.00 Jan 2015 Puts & FB $1.54 Jan 2015 as well.
How about PCLN? I wasn't able to get in after your initial post as the stock starting crashing soon after. Which of the Jan 2016 put contracts do you like at current price?
Thanks again as always,
J.T. Marlin
Hi JTM. I see you snacked up on 4 contracts of the 350s. That is a right sized bet at this stage IMO. There is always the chance that the recent pullback from 620 to 490 was an a-b-c to the prior 4th. That is in fact what the chart is trying to masquerade as with that big throw over on the 4th wave. It's trying to appear as an A-B-C in order to fool as many as possible. JMO and time will tell.
As for PCLN, well, if the markets roll over then everything is going to roll over at once. But PCLN's bounce so fat has taken it above the 61.8 and now it is back testing it from above using a 3 wave pattern. You are going to want to see if that level holds or not over the next few days IMO before committing put-money to the cause. Because of this I would specifically avoid the Jan 15s. Why? Because it's possible that the sideways action over the last 2/3 of 2011 was actually wave 4 and if that is the case then PCLN could now be tracing out wave 5 of 5 with the last peak being only 3 of 5. It could turn into some owl ears and at worst case 5 of 5 would = 1 of 5 in length and that could take the shares up to a nice round $1400. I could see it happening.
Let me also caution not to shoot too many rounds at this point. Keep some good powder dry because while it is fun to call the tippy top, the real money is generally not made during 1 down. It is 3 down where the massive moves per unit time generally materialize in the form of gaps. In fact, the 3rd of 3 is your best put-buying opportunity. Imagine being in BBY puts back in Dec after wave 2 finished and wave 3 was ready to unfold...
Also note that we did not get a walk away May as I had hoped. The next time of year that is generally dangerous for crashes is sept-oct. So again, good reason to play and have fun but not to get too committed with puts (which cannot be bought back cheaply) until the market shows some downside momentum.
With all that said, you asked about the Jan 2016 LEAPs. Assuming you wait a bit to see if the current wave is an a-b-c or a 1-2-3-4-5, I would be looking at deep out of the money. The 530s were last at 6.90 but that was likely someone buying into the recent dip. I would rather see these go off in the $6 range assuming the stock goes up into a 5th wave. If you have to buy right now with 6.10 at the bid and 7.20 at the ask (a pretty big spread on this illiquid bet), I suspect you will get takers around 6.60 but unlike at something less.
Of course, a cost averaging strategy makes good sense for options.
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