|Simple Trading Ideas||
As I pointed out in the previous post small-caps are outperforming large-caps. It is also true that mega-caps are underperforming large caps. To trade the pullback you don’t want to pick a strong stock which only slightly moves lower but you want to trade a weak one. The best thing to do in this case is to pick a mega-cap stock which underperforms mega-caps, DIA. I picked Chevron, CVX for this reason. Chevron trades with S&P 500 or DIA as you can see it on the chart and underperforms it as you can see below the chart. To take advantage of the short term downtrend I entered a trade on September 23 with a bearish CVX Nov 120/125 put spread for $1.90. This spread trades for $3.05 today which is a 60% increase. The breakeven point for this trade is 125-1.90 = 123.10. CVX is currently trading at $120.83. The reason I bought a spread instead of a simple put is to better control the breakeven point, the “risk”. CVX hasn’t reached my downside target so I expect more profit from this trade before closing the position.