Raschke: Shooter Monday: NLY
By Skip Raschke 10/22/12 - 09:27 AM EDT
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Note: ALL SHOOTER TRADES ARE VERY HIGH RISK TRADES INTENDED FOR EXPERIENCED OPTIONS TRADERS WHO UNDERSTAND THEIR RISK IS 100% OF THE PREMIUM.
We are currently well into the not-so-merry month of October which is the real scary month for bulls. September does not qualify for that feared moniker as last month's hyperbolic financial headlines would have had you believe.
Any month when earnings can be nasty surprises, when elections loom, and when that month ends when millions clamor to be scared silly as they dress up in things otherwise left in the closet, you have to respect as a month with peerless downside potential.
October is also a month when people literally if not figuratively whistle as they walk past graveyards. The stock market can and will cause such an ominous feeling in any bullish trader's mind. And if I were one of those millions who are long Annaly Capital Management (NLY) I would be puckering up that whistle as the stock has formed what I refer to as the M pattern.
The M pattern can be seen on a two-year price chart of NLY. The first down leg is that of early October 2011 at $15.50. Next down leg of the M is found around early April of this year once again near $15.50. As of now NLY is playing with the third down leg forming this M pattern, the price support line being once again $15.50. Should NLY take-out $15.50, $12 and then possibly $8 would be in play.
Further bearish arguments I can and will make about NLY can be found on my previous NLY trade (August 13). While the red flags still fly around NLY as referenced in that trade set up, this trade is purely a technical call on speculation. However, and in addition, take notice that Zacks Equity Research has just joined the growing list of those warning about NLY as after the close this past Friday Zacks went to a "strong sell" on NLY (See: http://finance.yahoo.com/news/zacks-5-rank-additions-friday-095623612.html).
This trade is very high in risk potential as are all shooter trades, but also high in reward potential since it is not hedged.
Trade: Buy to open 3 NLY November 16 puts for $0.35.
The total risk is the premium paid. As always, I will monitor the trade on this site in the comments section below.
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