Remarks: I was too late for the post-triangle thrust. I just noticed it over the weekend 07/27/2019. Height of triangle ~ (202 - 125 = 77). Target ~ 169 + 77 = 246. The 1.618BC projection ~ 241. The stock hit about 240 at the high, which is pretty close thus far. Unfortunately, since I spotted this too late, a bullish idea may not be actionable anymore. However, one thing to consider now is to look at a short opportunity. This is what I'd like to focus on.
Observations: Recently, a doji candlestick formed on the daily time frame 07/26/2019. I'm anticipating this may be ripe for a possible candle stick pattern to form. This may include: evening star, bearish counterattack, dark cloud cover, bearish engulfing, and possibly few more (please add to the comments section for other possible candle stick patterns). Confirmation is still needed (if you want to be on the safer side). The daily RSI(14, close) is currently sitting at 81.59. The last time the RSI hit this high was on 06/10/2019 and registered a value at 82.71. The following day, the stock fell approximately 25%. Earnings is expected to be released today, 07/29/2019 after market close. At a current $14B valuation for a food company whose future is relying on plant based patties/consumables, it's pretty difficult to see how this could be valued at a much greater premium. The stock price may continue further to the upside, but I think that continued narrative is becoming exhausted. In other words, I strongly believe that bulls are either running out of time or their time is already up. If you happened to be one of those lucky few individuals to amass a fortune in such a small period of time, it may be best to take the chips off the table before the earnings report.
Target: My target for this stock is $121 (or less) within 6 months (by 01/17/2020 or earlier, which happens to be an options expiration date). How did I get this number? Observe the chart. You'll see a horizontal pink line at that level. There is a price gap between 06/06/2019 and 06/07/2019. The high of the gap section is about $121. The low of the gap section is about $102. In other words, no trading occurred in the price range of $102-$121 between those two days during regular market session hours. Very often, gaps get filled. My anticipation is that this gap will get filled eventually.
Implementation/Action/Cautions: You may find that it's difficult to short this stock because of the high shorting demand. Borrow rates at some brokerages exceed 150% interest per year and on top of that they may require you to put up additional margin as collateral. It's possible there may be no inventory to short at your broker. One possible way to short this is to sell a bear call spread. One possibility is to sell the 120C, buy the 235C or some strike near the market price for 01/17/2020 expiration for a decent premium and reward/risk ratio. The last time I checked, it was about 2.8:1 ratio (about 85 points premium, 30 points risk) as of 07/26/2019. This risk is worth taking for my personal taste. However, this may not work for you since your trading style or risk tolerance may be different from mine. Moreover, the main problem with selling a call spread in a stock with high demand is that there is a real possibility of getting the 120C option assigned to you very early before expiration because it is an American style option. Then, you may get a buy-in and be forced to buy the shares on the open market in order to deliver them to the buyer. If that buy-in event happens, there is an extremely good chance that you'll be buying the shares where prices are increasing (but you still have that long 235C option that you could possibly exercise as a defensive/hedged position in case the stock price explodes much higher). However, based on my personal experience, I've been assigned before where prices were declining. So, anything is possible. In theory, you could sell another 120C option afterwards, but the premium would likely be much different than the price you sold at before the option assignment and just re-expose yourself to early assignment risk again. To avoid early assignment risk altogether, you could just purchase a 235P option outright for about $90 premium (price as of 07/26/2019), but you'd be taking on much more risk in this case since you'd want the stock to go substantially lower than $145 to make a decent profit on the intrinsic/extrinsic factors of the option.
For the bear call spread, unwind the position if $121 is hit before expiration. If you want to be a little bit more aggressive, unwind the position if $102 is hit (gap filling scenario) before expiration. If you want to be super aggressive/adventurous, and I don't condone this, "hope" that both options expire worthless to extract the full 85-point premium at expiration. It's possible, but doesn't happen often when you're selling deep in-the-money calls in a bear call spread. The stock really needs to tank in that scenario. To recap, risk is: about 30 points max + possibility of early assignment. Reward is: about 85 points if both options expire worthless, or a bit less (maybe 65 or 70 points?) if unwound before expiration with a month or two left with the stock trading around $102-$121.
I hope this post has generated a trade idea for you or at least given you some cautionary notes about selling option spreads.
Observations: Recently, a doji candlestick formed on the daily time frame 07/26/2019. I'm anticipating this may be ripe for a possible candle stick pattern to form. This may include: evening star, bearish counterattack, dark cloud cover, bearish engulfing, and possibly few more (please add to the comments section for other possible candle stick patterns). Confirmation is still needed (if you want to be on the safer side). The daily RSI(14, close) is currently sitting at 81.59. The last time the RSI hit this high was on 06/10/2019 and registered a value at 82.71. The following day, the stock fell approximately 25%. Earnings is expected to be released today, 07/29/2019 after market close. At a current $14B valuation for a food company whose future is relying on plant based patties/consumables, it's pretty difficult to see how this could be valued at a much greater premium. The stock price may continue further to the upside, but I think that continued narrative is becoming exhausted. In other words, I strongly believe that bulls are either running out of time or their time is already up. If you happened to be one of those lucky few individuals to amass a fortune in such a small period of time, it may be best to take the chips off the table before the earnings report.
Target: My target for this stock is $121 (or less) within 6 months (by 01/17/2020 or earlier, which happens to be an options expiration date). How did I get this number? Observe the chart. You'll see a horizontal pink line at that level. There is a price gap between 06/06/2019 and 06/07/2019. The high of the gap section is about $121. The low of the gap section is about $102. In other words, no trading occurred in the price range of $102-$121 between those two days during regular market session hours. Very often, gaps get filled. My anticipation is that this gap will get filled eventually.
Implementation/Action/Cautions: You may find that it's difficult to short this stock because of the high shorting demand. Borrow rates at some brokerages exceed 150% interest per year and on top of that they may require you to put up additional margin as collateral. It's possible there may be no inventory to short at your broker. One possible way to short this is to sell a bear call spread. One possibility is to sell the 120C, buy the 235C or some strike near the market price for 01/17/2020 expiration for a decent premium and reward/risk ratio. The last time I checked, it was about 2.8:1 ratio (about 85 points premium, 30 points risk) as of 07/26/2019. This risk is worth taking for my personal taste. However, this may not work for you since your trading style or risk tolerance may be different from mine. Moreover, the main problem with selling a call spread in a stock with high demand is that there is a real possibility of getting the 120C option assigned to you very early before expiration because it is an American style option. Then, you may get a buy-in and be forced to buy the shares on the open market in order to deliver them to the buyer. If that buy-in event happens, there is an extremely good chance that you'll be buying the shares where prices are increasing (but you still have that long 235C option that you could possibly exercise as a defensive/hedged position in case the stock price explodes much higher). However, based on my personal experience, I've been assigned before where prices were declining. So, anything is possible. In theory, you could sell another 120C option afterwards, but the premium would likely be much different than the price you sold at before the option assignment and just re-expose yourself to early assignment risk again. To avoid early assignment risk altogether, you could just purchase a 235P option outright for about $90 premium (price as of 07/26/2019), but you'd be taking on much more risk in this case since you'd want the stock to go substantially lower than $145 to make a decent profit on the intrinsic/extrinsic factors of the option.
For the bear call spread, unwind the position if $121 is hit before expiration. If you want to be a little bit more aggressive, unwind the position if $102 is hit (gap filling scenario) before expiration. If you want to be super aggressive/adventurous, and I don't condone this, "hope" that both options expire worthless to extract the full 85-point premium at expiration. It's possible, but doesn't happen often when you're selling deep in-the-money calls in a bear call spread. The stock really needs to tank in that scenario. To recap, risk is: about 30 points max + possibility of early assignment. Reward is: about 85 points if both options expire worthless, or a bit less (maybe 65 or 70 points?) if unwound before expiration with a month or two left with the stock trading around $102-$121.
I hope this post has generated a trade idea for you or at least given you some cautionary notes about selling option spreads.