Wednesday, June 27, 2012

update to the $CMG paper trade model

27 july - the pain continues with this stock, now trading at under 300.. last weeks ratio spread went out at zero. entered an Aug 300/315 ratio spread for 1.80 to start trying to make back some losses.


20july - stock sure got beat with the ugly stick on dan nathan said on options action..the stock lost 2billion in market cap on a 17million miss in revenue.. i think the move is overdone, there are two options..either sell out the position because you can not take the pain or start the grind of making back the loss.. and to do that i closed the worthless ratio spread and put on next weeks 320/335 ratio spread (buy one 320, sell two 335 calls). i did that for 1.50 debit to get the 15dollar wide spread.. if stock rebounds to pin at 335 next friday, just this ratio spread profits at $1500 and its profit range is about from 320-350.. all the while the LEAP is gaining back... now you could just sell upside short calls going forward but my thesis is that the stock rebounds and i dont want a lone short call capping the rebound. see the position in a google docs spreadsheet


2JULY - closed out the 410/425 ratio spread and moved it down to the 390/405 ratio spread.. all for zero.. the closer you get to opex the tighter the prices will get and at $15 wide ratio might be rolled to only a $10 wide.. so if you are thinking of adjusting the strikes, do it sooner rather than later

Sell to open the July 390/405 call ratio spread (buy one390, sell two 405s)

this ratio sets up for double upside leverage to 405, profit trails off till 420.. but at 420 your leap as gained.

27jun - with the stock down 18ish when i looked on what seemed to be a lawsuit about their "natural" chicken, stock got down to 394 and was at 400 when i put this trade on:

Buy the jan2014 300strike call for $143 ($14300)
Buy the July 410/425 call ratio spread for zero (buy one 410, sell two 425's)

historically stocks that selloff big on some lame lawsuit or allegation rebound..MCD comes to mind. also fits the Post-it i have on my monitor "wait for a big down day before buying a Leap".. The ratio spread portion sets you up for a double upside move to 425 and is profitable from 410-440 with max profit at 425. a ratio spread gets near max profit near the opex so you have to plan on holding it to near opex. this trade in the google docs spreadsheet

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