On Options Action last Friday, we held a funeral for high-growth momentum stocks. The trade that had been working so well for so long appears to have come to a halt as investor appetite for risk has retrenched. Traders have tossed names like Netflix , Sina , Baidu , Lululemon and Fossil into the unmarked grave of technically broken stocks. However, there remains one notable standout: Green Mountain Coffee .
But according to Cantor's Mike Khouw and Oppenheimer's Carter Worth, that trade might be overcaffeinated, and should soon join its high momentum brethren and succumb to gravity (GMCR is down 3% today).
As a bearish bet, Mike suggested the following put spread.
MIKE'S GREEN MOUNTAIN OPTIONS TRADE
- BUY JAN ‘12 105-STRIKE PUT FOR $20.50
- SELL JAN ‘12 80-STRIKE PUT FOR $8.50
HOW MIKE’S GREENMOUNTAIN TRADE MAKES MONEY
- LOSSES ABOVE $93
- PROFITS BELOW $93
- PROFITS CAPPED AT $80
Our second trade focused on everyone's favorite stock: Apple.
As a bearish call ahead of what many expect to be the unveiling of the iPhone 5, Dan Nathan of Riskreversal.com suggested buying weekly put spreads in Apple to isolate tomorrow's event. His trade and breakdown are below.
DAN'S APPLE OPTIONS CHAIN
- BUY OCT WEEKLY 375-STRIKE PUT FOR $5.20
- SELL OCT WEEKLY 365-STRIKE PUT FOR $2.70
HOW DAN'S APPLE TRADE MAKES MONEY
- LOSSES ABOVE $372.50
- PROFITS BELOW $372.50
- PROFITS CAPPED AT $365
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