
General Mills Stock Is Poised for a Selloff - Use This Trading Strategy to Profit
General Mills (GIS) - Get Report stock has jumped 6 points in four days, a strong upward move. But technical analysis shows that the stock could move lower soon. Traders looking to profit from such a move can employ stock options.
The chart reveals that the latest move took price on a breakout far above resistance. But that's not all. The volume spike (the largest in the past six months) confirmed the excessive price move, and further confirmation was found in the relative strength index, which measures momentum. It closed on Tuesday at 83.45, well into overbought territory.
Taken together, the price move above resistance, the volume spike and the high momentum reading all point to a likely bearish correction in the near future.
With this in mind, take a look at the July 15 options that expire in nine days. General Mills stock closed Tuesday at $72.06, making the July 72.50 put option attractive. It closed at an ask of 1.68. Including trading fees, this option can be bought for $177.
A stock price of $70.73 marks the break-even level for this put (strike price less cost of the long put). That is only 1.33 points below the Tuesday closing price. If the correction occurs as expected, the stock's price could easily fall well below this break-even level, creating a nice short-term profit.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Besides blogging atTheStreet.com,Michael Thomsett alsoblogs at theSeeking Alphaand several other sites.He has been trading options for 35 years. His website lists his options books: Thomsett Publishing Website- he has also published a paper in the current issue of the Journal of Technical Analysis - link at JOTA issue 69 -- this paper challenges commonly held beliefs about market efficiency and poses a trading system that can beat the market. His new book can be viewed at tinyurl.com/z44kzlu










