This Trade Targets a 140% Return in Two Months

Option Trade of the Day: Philip Morris International (PM)

Yesterday was an odd day for the market. Stocks were mixed and that led to the Nasdaq finishing higher by 0.19%, the S&P was higher by 0.08%, and the Dow was down 0.16%. There were numerous stocks that I track that jumped three or four percent and there were others that were down three or four percent.

I even noticed stocks within the same sector where one jumped 4% and one dropped 4%.

[hana-code-insert name=’adsense-article’ /]The sectors were evenly split yesterday with five higher and five lower.

The energy sector led the way with a gain of 1.56% and the industrial sector gained 1.02% as the second best performer.

The consumer staples sector was the worst performer with a loss of 0.75%.

My scans turned a little more bearish last night with 46 bearish signals and only 11 bullish signals.

The bearish skew caused my barometer to drop to -22.3.

One name on the bearish list was Philip Morris International (NYSE: PM). If you are a regular reader of my articles, you may have seen PM in the trade ideas before as I suggested puts on the stock on January 26 and again on March 8.

We are seeing the same pattern again and I am looking for another 10% drop or more. The cyclical decline has worked for us before and I am willing to try it over and over until it doesn’t work.

Buy to open the June18 105-strike puts on PM at $5.00 or better. These options expire on June 15. A 10% drop from the high on Tuesday would put the stock down around $93 and would make these options worth $12. From $5 to $12 would be good for a 140% gain.

— Rick Pendergraft

[hana-code-insert name=’IAlley article’ /]

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.