I hope you’re enjoying your long Labor Day weekend.
We are on our way to axe throwing today with the kids. (As opposed to my usual axe grinding in this column!)
By the way, it is not an easy activity. It’s hard enough to get the axe to stick into the wood, let alone to get a bullseye.
But it is a fun way to spend time together. It helps that we go with two other families and the boys are like brothers.
As for trading this week, I am seeing two stock charts that look like they are ready for a pullback.
The first stock is Alcoa (TIcker: AA), which has had quite the run since its recent low on August 19 of $36.61.
AA closed at $47.21 on Friday, forming a doji candle that could be signaling the end to this uptrend that resulted in a gain of 28% on the stock price.
I think AA can trade back down to at least $42, maybe even $40, and I think we can get the move this week.
Looking at the options, I like the Sept. 10 expiration cycle:
If AA opens and trades lower on Tuesday I will pay up to $1.05 on these.
I will exit losses at the $.70 area and take my profits at $2.00 and higher.
The other stock is Cassava Sciences (Ticker: SAVA).
Wooo-weee that is one ugly chart:
Friday’s candle is a bearish engulfing candle which means this downtrend has not ended — there is room to go lower.
The option prices are pretty pumped, which allows for my favorite spread — the vertical spread.
If SAVA opens and trades lower on Tuesday, I will be a buyer of the Sept. 10 50-strike puts with an implied volatility of 165.99 and a seller of the Sept 10 45-strike puts with a higher implied volatility of 178.57.
Big difference in vols means I can get a good price on the vertical spread to play the downside.
I would pay up to $1.95 for this spread. I will take my loss down 30%, which would be around $1.35, and begin profit taking once the stock nears $45. The spread will be trading close to $4 due to the close expiration time.
Now I am off to kick some axe!
Thanks for Reading … See You Next Tuesday!