If traders are looking for a short, buckle up with the smart money as Mobileye NV (MBLY) looks set to shift into reverse on the MBLY stock chart once again. Let me explain.
It’s been nearly three months since I’ve written and warned bulls to steer clear of much-hyped, Israeli-based, auto-sensor chip specialist Mobileye and MBLY stock.
And for bearish traders that took action, a highly profitable situation developed using a MBLY March $37 put, which at its best has returned north of 350% as Mobileye shares skidded lower.
Now it’s time for traders — comfortable with shorting using limited risk spreads — to take a second and, hopefully, an equally profitable look at MBLY stock as a bearish position.
Smart Money: Sell MBLY
According to short-seller Citron Research and a firm known for its matter-of-fact, conflict-free analyst calls, other than being short companies it determines to be overvalued or simply garbage, MBLY stock is a short.
In fact, despite automotive relationships with a who’s who of car manufacturers like General Motors (GM), Ford (F) and Honda (HMC) and Volkswagen (VLKAY), Mobileye is such a car wreck that back in December Citron Research named MBLY stock “short of the year: 2016.”
And while none of this is new information, it’s certainly pertinent regarding the fresh bearish situation on MBLY’s stock chart.
MBLY Stock Weekly Chart
Click to Enlarge
But I am bearish on MBLY and still see healthy downside potential of around 29% for short positions.
Using Mobileye’s chart as guidance, I am fairly confident in slapping a price target of $23 to $25 over the next couple months, essentially a retest of Mobileye’s lows.
What’s caught my eye is the counter-trend rally that appears to have lost steam, setting MBLY up for a resumption of the larger downtrend.
Prior channel support and a 50% retracement level calculated from the late December high leading the precipitous breakdown in MBLY should act as resistance for bears.
Also constructive is Mobileye’s large, but likely smaller, short interest following this past month’s rally. I suspect the smart money shorts simply buying back MBLY stock to lock in profits aren’t really adding much fuel to goose MBLY higher.
MBLY Stock Options Strategy
Being slightly conservative and tempering my discussed technical expectations for Mobileye, the April $32/$28 bear put spread for $1.25 is attractive.
This MBLY spread allows for a max profit of $2.75, or a return of 200%, if MBLY stock falls about 17% lower below the $28 strike at April expiration, but still well above our $23 to $25 price target.
Closer to the current price action, the spread trader breaks even at $30.75 or about 8.5% lower in MBLY stock.
Bottom line, if Tuesday’s bearish turn in MBLY gains momentum in the near-term, traders will enjoy the ride lower immediately and with much less risk given the vertical’s reduced Greeks risk profile.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
