Today, we are using some moving average filters to find bearish stocks and then looking at a couple of different trade ideas.
First the stock scanner:
Which produces these results:
Two companies that meet our criteria and they are Datadog (DDOG) and ServiceNow (NOW).
DDOG Bear Put Spread
Using the June 21 expiry, traders could buy the $110 put and sell the $105 put.
The price for the trade is $1.40 which means the trader would pay $140 to enter the trade. This is also the maximum loss. The maximum gain be calculated by taking the width between the strikes and subtracting the premium paid:
5 – 1.40 x 100 = $360.
The breakeven price for the trade is equal to the long put strike, less the premium. In this case, that gives us a breakeven price of $108.60.
Company Details:
Datadog Inc. is a monitoring and analytics platform for developers, IT operations teams and business users in the cloud age.
The company's business runs around its portfolio of over 400 out-of-the-box integrations including public cloud, private cloud, on-premise hardware, databases and third-party software.
The company's Software as a Service platform integrates and automates Infrastructure Monitoring, Application Performance Monitoring, Log Management, User Experience Monitoring, Network Performance Monitoring, Security Monitoring, Incident Management and Continuous Profiler that can be used individually or as a unified solution by customers.
The company has a single operating and reportable segment.
Solid uptake of its cloud-based monitoring and analytics platform also helped Datadog strengthen customer base.
Datadog generates revenues from the sale of subscriptions to customers using its cloud-based platform.
Let’s look at another bear put spread, this time on ServiceNow.
NOW Bear Put Spread
On NOW stock, traders could buy the June $670 put and sell the $660 put to create a bear put spread. That spread could be bought for around $2.75.
The cost of the trade is $275 which is also the maximum loss with the maximum possible gain being $725. The maximum gain would occur if NOW stock fell below $660 on the expiration date.
Company Details:
ServiceNow Inc. provides cloud computing services that automate digital workflows to accelerate enterprise IT operations.
The company's Now Platform enables enterprises to enhance productivity by streamlining system processes.
By utilizing its product portfolio, customers can reduce the manual time taken by complex processes and consequently optimize total cost of ownership.
Its solutions address the needs of many departments within an enterprise, including IT, HR, facilities, field service, marketing, customer service, security, legal & finance. The company has 3 product suites for IT management and operations: IT Service Management, IT Operations Management and IT Business Management solutions.
Non-IT products include Customer Service, HR and Security Operations. Its end-markets include financial services, consumer products, IT services, health care, government, education and technology. ServiceNow derives revenues from two sources: subscriptions and professional services & others.
Conclusion
There you have two different bearish trade ideas on two different stocks. Remember to always manage risk and have stop losses in place.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
