[Options] An Opportunistic Bearish Bet

Sean McLaughlin
December 11, 2019

I know what you're thinking? A bearish play? In this market?

Believe it or not, there are some weak sectors out there, and there's a stock we're bearish on that may have just exhausted itself in a last-gasp dead-cat bounce which may be soon reverse and resume its downward trend.

Here's a chart of Alerian MLP $AMLP that was shared during the special year-end Conference Call held last week:

This week, $AMLP has bounced back a bit, setting up a juicy opportunity to position for a resumption of the trend and a rare opportunity to buy puts when volatility is a bit low.

Here's the Play:

We're buying $AMLP April 8 Puts for 35 cents. This is a defined risk play. The most we can lose is the premium paid.

If $AMLP closes above $8.40, I'll consider this trade busted and I'll look to exit the trade for whatever I can salvage -- if anything.

However, if $AMLP does in fact resume its move lower, I'll look to sell half of my puts for double what I paid -- approximately 70 cents. Then I'll hold the rest for a test of the ASC price target of 6.40. If we get there, our puts will be worth more than 4 times what we paid for them. I like that risk-reward scenario.

ASO subscribers who have any questions about managing this trade can email me here.

~ @chicagosean

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