Bearish Trade Idea for a Bearish Stock Market

Tom Gentile

Posted in Investing Tools

By: Tom Gentile on January 21st, 2022 • 4 mins read

Hey Everybody – Tom here with a fresh Money Calendar setup.

Yes, Money Calendar researches and produces both bullish and bearish setups.

The problem with the bearish setups is there are very few of them in comparison to the number of bullish setups. The markets have been in a bull run for 10+ years and there haven’t been many times of sustained pullbacks, especially in the month of January over these years to provide an ideal bearish setup.

Look at the week that was and you can see the number of bullish setups is 90+ percent every day. And the bearish setups are all less than our ideal 20-30-days in length.

The longest period of days in the batch of bearish setups for today is Harley Davidson, Inc. (NYSE: HOG) with a 10-day pattern or tendency of dropping. It has dropped an average of $2.19 over this period of days 9 of the past 10 years.

I like to trade options on stocks or ETF’s with a 20–30-day pattern so it gives the stock or ETF time to work.

A Preferred Option Strategy

Know that I like to sell to open credit spreads and since I like to do so over a short time to expiration say 7-14-days and with elevated Implied Volatility (IV) in the options. That being said that is the setup with a Sell-to-Open Put Credit Spread trade on HOG.

I would like to emphasize I am a fan of the Put Credit Spread over a Long-Put trade, but here are the numbers on both. But first the images from Money Calendar for HOG.

How does a stock going down in price show as a profit?

It is under the premise of a short sale. If one sold the stock short at say 40 and bought it back to cover at 30 that is a profit of 10-points.

Instead of shorting the stock a strategy is to go long a put, or put credit spread, but those are strategies based on where you anticipate the stock going.

I will show a long-put option trade for the sake of education, but I will also include the Sold to Open Put Credit Spread as that is the option I would rather do.

Long-Put: Buy-to-Open the February 04 (based on expiry just past the end date) $35 Put

This isn’t that bad though if you look at the numbers. If HOG drops just its avg. price drop of $2.19 that would take the stock down to 32.13 based on today’s closing price.

That would have the stock 2.87 points in the money (or $2.98 in the money) and that would be the premium value left in the options if held until expiration.

If ones cost were 1.48 per contract a double would be possible with the option value at 2.96.  2.98 In the Money and that being the value of the option – hey a double is possible.

Put Credit Spread

This is where one could sell to open the January 28, 33/32, Put Credit Spread:

We sell credit spreads with a short time to expiration and want at least 1% average ROI per day in the trade. This shows a 17.65% ROI potential over 8 days or a little better than 2% ROI per day.

App: Toms Option Tools

Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.

Other times I will have other charts may work to amplify my educational points. 

Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.

Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.