Tuesday, March 11, 2014

Bear Put/Call Spread Option Trades & Examples For 2014

On this page, I will be posting my bear put & call spread trades for 2014. Timing a downside move is not easy, however a bear put spread is generally a cheap way to put a bearish trade on while minimizing some of your risk.

Options have risk that can be greater than stocks & other investments. Always research trades on your own. These are typically high risk trades that have limited upside potential. Trade at your own risk.

Organovo Holdings Inc. ONVO - Bear Call Spread Trade - 3/12/2014
This is the classic, story is better than the stock. On the surface, investors think Organovo is in the business of making organs for transplants. Read the description of the company - as taken from the companies website:
Organovo designs and creates functional, three-dimensional human tissues for medical research and therapeutic applications. We are collaborating with pharmaceutical and academic partners to develop human biological disease models in three dimensions. These 3D human tissues have the potential to accelerate the drug discovery process, enabling treatments to be developed faster and at lower cost. Organovo is changing the shape of medical research and practice. 
Idiots on financial blogs are touting that the company is trying to print organs for transplants - when the company clearly doesn't state that above. A better analysis of the company usually come from the sell-side - one of the better ONVO articles is here.

Bear Call Spread Trade Example
Buy - May $9.00 Call
Sell - May $7.50 Call

Break even = $8.27
Current share price is $8.76


United Online UNTD - Bear Put Spread Trade - 3/11/2014
My thesis on UNTD is that new ownership hired a first time CEO to continue status quo. The company eliminated a dividend recently, and provided no real concrete plans on how they will turn around the business model which relies on recurring subscription payments. I believe the stock will trade down over the next several months as the company will be in no hurry to lay out any expensive turn-around plans or acquisitions - considering they want to keep capital around to pay themselves hefty salaries for as long as possible.

Bear Put Spread Trade Example
Buy - April $12.50 Put 
Sell - April $10.00 Put

With this trade, we're just looking for the stock to trade under $11.00 for the next month. Current stock price is $10.54

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