Three Bearish Plays for January

These puts on MMM, CNI and RL give you plenty of time to profit

   

Get ready for a very active fourth quarter of 2012 because the next several months and beyond look to be the best option trading environment I’ve seen in years. I’ve got three put trades I’m recommending right now: two bearish rising wedges, and one head-and-shoulders top.

3M – Bearish Rising Wedge Pattern

Lansing MMM 10 16 300x196 Three Bearish Plays for January
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The pattern on the 3M (NYSE:MMM) Jan (2013) 85 Puts is a bearish rising wedge that has officially broken the trendline.

Let’s buy these puts anywhere in the range of $1.05 to $1.20. Take profits when they hit my target of $3. The stop/loss to exit at right now will be if the underlying MMM stock takes out $97 to the upside.

Canadian National Railway – Bearish Rising Wedge Pattern

Lansing CNI 10 16 300x197 Three Bearish Plays for January
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Canadian National Railway
(NYSE:CNI) shows the same pattern — a bearish rising wedge. You can also see here a little bear flag on the daily part. It’s not a huge momentum play, it’s just a rail stock that has been going up since last year, and it finally looks like it’s ready to break down.

Let’s buy the CNI Jan (2013) 80 Puts anywhere in the range of $1.05 to $1.20, which is exactly where they’ve been lately. Take profits when the puts hit my target of $3. The stop/loss to exit at right now will be if the underlying CNI stock takes out $97 to the upside. Because these are January 2013 options, it might take a few trading days to get a starter position initiated at these levels, so be patient.

Ralph Lauren – Head and Shoulders Top

Lansing RL 10 16 300x195 Three Bearish Plays for January
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Let’s buy the Ralph Lauren (NYSE:RL) Jan (2013) 120 Puts anywhere in the range of $1.05 to $1.20. Take profits when the puts hit my target of $3. The stop/loss to exit at right now will be if the underlying RL stock takes out $183 to the upside.

I thought this was an awesome pattern if the market can muster any kind of bounce. The 120 strike puts would be a break of the neckline, but we don’t actually need the stock to drop to $120 to hit our target. If this stock drops to $140, chances are we would have already taken profits.

Keep in mind that when you buy an option, you actually need someone to sell it to you. These contracts don’t just materialize out of thin air. And because these are January 2013 options, it might take a few trading days to get a starter position initiated at these levels, so be patient.

John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.


Article printed from InvestorPlace Media, http://investorplace.com/2012/10/three-bearish-plays-for-january/.

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