PALM, HK's suggestion

How to view the entire chart:


1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.


I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.


I Hope this helps,


Juan

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Our friend HK has submitted this trade for our consideration. This is not what I typically do, but I think it has possibilities:



The thing to notice first is that HK has selected a 4/10 ratio in the put side and a 5/10 ratio on the call side, so this is a little more bearish than our usual, even still, Delta is positive, so an aggressive move up may work just fine. A strong decline with a spike in volatility should work fine too.

Notice the IV on the long and short portions of the trade. The skew is against us as the IV is greater on the long side. However, the proximity to earnings may change that. One approach could be to enter the position as a long straddle and wait until the IV increases close to earnings, this happens commonly. Then after earnings, as volatility declines, one may buy back some of the shorts. I don't usually do this, so go back test this strategy if you think it is a good idea.

Notice also that the IV is at the low end of the 2yr range, so this a good time to enter the trade. Regularly, there is a spike in IV, probably associated with earnings. This would support my strategy suggestion above. Please DO check the past earnings dates and see if the strong decline in IV is associated with earnings, I suspect it is. Go to Earnings.com to verify that.




The IV/SV ratio is in decline, but it is now below 1. I would wait until it begins to reverse, if you decide to enter the whole trade at the same time.


Looking at the weekly chart, I would be bearish on this stock since it has already formed a double top, and it is now going to test it. Since the stochastics is overbought, a decline might follow. However, if it does break out, it will go up strongly. So your choosing this trade is a wise move. I would even consider a PRC, but it does not fit my regular triggers as you know.



HK, keep us informed on the progress on this trade, if you decide to get in, and when you do.