A Relatively Aggressive Option Trade

Option Trade of the Day: Crown Castle (CCI)

We had another mixed day in the market with the Dow moving up 0.47% while the Nasdaq was down 0.2%. The S&P was down, but only 0.08%. Seven of the ten main sectors were down yesterday with the materials sector dropping 1.32% and it was the only one with a significant decline. The industrial sector was the best performer with a gain of 0.3% and that helped the Dow.

[hana-code-insert name=’adsense-article’ /]For the sixth straight day my scans produced more bearish signals than bullish signals by a count of 34 to four.

Despite the differential, my barometer did move up slightly from -60.4 to –54.4.

Given the bearish skew, I have another bearish trade idea for you today and it is on Crown Castle International (NYSE: CCI).

I have followed CCI for some time and had even played it bullishly back at the end of September.

However, the company ranked in the top 4% of companies for EPS growth back in September and now they rank in the bottom 42% in the same category.

The chart for CCI shows that the stock has been in a range for the last four and a half months with the upper end near $112 and the bottom down near $103. I look for the stock to drop back down to the bottom of the range due to the overbought level on the stochastics as well as a high sentiment reading.

Buy to open the April18 110 strike puts on CCI at $2.75 or better. These options expire on April 20. These options are slightly in the money and they only have 36 days until expiration. With that in mind, this is a relatively aggressive trade and should be treated accordingly. I would set a stop-loss at $112. I would also consider adjusting the stop to account for the time left. If the stock starts dropping immediately, you can move the stop down a little. I also would suggest not keeping the options open past April 6 as the time decay will increase dramatically in the final two weeks before expiration.

— Rick Pendergraft

OPTIONS DISCLAIMER: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, investorservices@theocc.com.

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.