Bears pressed their advantage on Friday, driving prices to close at the lows for the week. It’s hard to strike an optimistic tone with technicals remaining grim and no end in sight for the Russia-Ukraine war. And that’s before we get to the sky-high inflation print from February’s CPI that has the Federal Reserve in a pickle. In sum, there’s a lot of reason to entertain bear trades these days.
And you don’t have to look hard to find them. Except for energy, every sector is sinking, and that has the number of downtrends multiplying.
Of course, if you look at growth-related names, particularly those in the technology sector that were once favorites among the momentum crowd, you’ll find downtrends that have been in place for nearly a year.
I scanned my watchlist for the best patterns for new bear trades, and these were my favorite:
Let’s take a closer look at each chart and build an options trade that will profit from further pain.
Bear Trades to Pounce on Now: Netflix (NFLX)
January’s earnings disaster destroyed the sentiment surrounding Netflix. And now that the falling 20-day moving average has caught up, prices are ready to fall anew. Over the past six weeks, a descending triangle pattern has formed. And now, with Friday’s nasty bearish engulfing candle, prices have officially broken the previous low point, signaling a new downswing is upon us. Consider $300 as the next target.
The rich price tag and high implied volatility make long puts a tricky proposition. I suggest entering a put spread instead to control the cost. You can widen or shrink the spread width to nail the optimal price. I’ll illustrate a $30-point spread below.
The Trade: Buy the April $330/$300 put spread for $8.60.
You’re risking $8.60 to make $21.40 if NFLX falls below $300 by expiration.
Roblox (RBLX)
Perhaps the worst-performing segment of the market is unprofitable tech stocks. Inflation and the upward pressure it puts on interest rates make investors favor companies raking in money now, not later.
Look at the four earnings reports at the bottom of the RBLX stock chart. They’re all negative. Sure, the company promises potentially big profits in the future. But investors don’t care. It’s a problematic purchase in the current environment.
It’s already been cut in half once and has nearly done so twice. Friday’s slide pulled prices to an all-time low, making every shareholder a loser. The path of least resistance remains lower.
The Trade: Buy the April $40/$35 put spread for $2.25.
You’re risking $2.25 to make $2.75 if RBLX falls below $35.
Bear Trades to Pounce on Now: MGM Resorts International (MGM)
MGM Resorts rounds out our trio of bear trades with a classic bear retracement pattern. It’s fresh off a plunge that saw increasing momentum and pulled prices deep below the 200-day, 50-day, and 20-day moving averages. The three-bar bounce returned MGM to a potential resistance zone, and Friday’s drop signals the next downswing has begun. Watch for a break below Friday’s low as further confirmation.
The previous pivot low near $36 is a logical first target. Because of the lower share price, long puts are a viable play if you want an aggressive bet.
The Trade: Buy the April $40 put for $2.60.
The max loss is limited to $2.60, and the max gain is unlimited.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
