Let’s consider Halliburton Company (ticker: HAL):
The VantagePoint platform recently indicated downside momentum.
Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bearish crossover indicated by the blue predictive indicator line crossing below the black simple moving average between July 20th to the 23rd. We can combine that with the VantagePoint propriety neural index indicator moving from the GREEN to the RED position the day prior. This indicator measures strength and weakness for a 48-hour period, in this case weakness. The move to the RED position further makes the case for a potential bearish scenario. We also have the predicted high and low below yesterday’s actual high and low indicating further strength. I want to play the VP bearish indication.
If one was strictly a stock trader, selling HAL in the $41.50 area could be prudent. You are anticipating a move to the downside. As a protective measure, it is always good practice to place a buy-stop order. In this case, placing that order in the $45.00 area will mitigate potential losses.
For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.
Because of the reasons given above, the purchase of a debit put spread may be one way to approach this situation. The first thing that you want to do is calculate your target price. In order to perform this calculation, you need three pieces of information: current price, expiration date and the implied volatility for that expiration date. For HAL this calculation yields a target strike of ~$39.50. You may want to consider the HAL August 3rd weekly expiration 39.5/40.5 put spread, buying it for $0.30. The most you lose is the premium paid and the most you can gain is the width of the spread less any premium paid. Max risk = $0.30 and max reward = $0.70. This means that you are getting odds of 2.33:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.