Today, we are using some moving average filters to find bearish stocks and then looking at a couple of option trade ideas.
First the stock scanner:
Which produces these results:
Two companies that meet our criteria and they are Petroleo Brasileiro (PBR) and Baidu (BIDU).
PBR Bear Put Spread
Using the April 19 expiry, traders could buy the $15 put and sell the $10 put.
The price for the trade is $0.77 which means the trader would pay $77 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 – 0.77 x 100 = $423.
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 $14.23.
Company Details:
Petroleo Brasileiro S.A., or Petrobras S.A., is the largest integrated energy firm in Brazil and one of the largest in Latin America.
The company's activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
The company operates in five segments:Exploration and Production, Refining, Transportation and Marketing, Distribution, Gas and Power. Petrobras has a total of 7,028 megawatts (MW) of installed capacity.
Biofuels: The unit deals with renewable energy programs, including biodiesel, agricultural supplies, vegetable oil extraction and ethanol.
Let’s look at another bear put spread, this time on Baidu.
BIDU Bear Put Spread
On BIDU stock, traders could buy the March $100 put and sell the $105 put. That spread could be bought for around $1.80.
The cost of the trade is $180 which is also the maximum loss with the maximum possible gain being $380. The maximum gain would occur if BIDU stock fell below $100 on the expiration date.
The Barchart Technical Opinion rating is a 72% Sell with a Strengthening short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.
Company Details:
Baidu, Inc., formerly Baidu.com, Inc. is a Chinese-language Internet search provider and is based in Beijing, the People's Republic of China.
The company offers a Chinese language search platform and conducts its operations principally through Baidu Online Network Technology Co., Ltd., a network of third-party Web sites and software applications.
Further, the company offers Japanese search services, including Web search, image search, video search, and blog search capabilities.
It also offers online marketing services to its customers directly and through other distribution networks.
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.
