Trade of the Day: Apache Corporation (APA)

The conditions are right for put option profits

By Ken Trester, Editor, Power Options Weekly

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While my indicators were showing some bullish signs earlier in the week, they have now reverted back to neutral, unchanged from last week’s readings. Personally, I’m still leaning towards the bearish camp, as there seems to have been a fundamental change in the atmosphere of the market, which has become more volatile and more unpredictable.

The “debt bomb” that is made up of extremely high consumer, corporate and government debt throughout the world, combined with the fact that the savings rate in the United States is near zero and margin debt — essentially the debt of the brokerage houses — is much higher than it’s been in a long time, leads me to maintain my bearish stance at this point. Plus, in the past we have usually seen a retest of market bottoms within a month or so, and I’m expecting the same thing to play out again this time.

I once had a discussion with Joseph Granville, who was a pretty well-known analyst at the time, who said that the reason he liked put options is that when a stock is moving up, it’s like climbing the stairs of the Empire State Building, but when it comes down, it’s like jumping off. Today I’m recommending puts on a stock that has provided numerous examples of that: Apache Corporation (NYSE:APA).

Buy to open the APA Apr 32.50 Puts (APA180420P00032500) at $1.20 or lower.

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