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Trading Ideas

May 12th, 2009 · No Comments

Well, we can now say that our first trading idea is a roaring success..

We advised you to either short, or better yet, sell calls of DineEquity (DIN) on May 3, a little over a week ago. We suggested May or (somewhat foolishly) June options, like the 35 calls. These May 35 calls are now virtually worthless (and have a couple of days to run), they could have been sold for at least $1.60 on May 3.

the June 35 calls can be bought back for 90 cents (while they could be sold for at least $3.50 on May 3).

Selling calls, especially when uncovered (that is, if one doesn’t own the underlying stock) is very risky, but as this example shows, it can also be very profitable. In this case, the chart was so ridiculous that the stock just basically had to pause at the minimum, or go down, as it happened.

If you had shorted DIN instead, you can cash in for a nice profit today as well, as the stock has fallen from $33+ to $26 in this short time interval.

Here you can see today’s graph, the timing of the trade has worked quite well..

Tags: DIN · Technical Trading Ideas