It has been my observation in recent sessions that there appears to be a lot of put sellers in the market right now and they look to be playing the "jacked up" premium game in the August expirations. Especially in some of the Dow components.
My observations have been built by trading multiple put trades in the various Dow components, specifically Citigroup (NYSE:C) $31.46 -1.76%. The "performance" of these near-month options has been miserable to say the least. Yesterday, when C was trading at its lows of $31.53 the C Aug. $32.50 traded $2.00. While the stock has traded below yesterday's low, I've yet to see an offer above $1.90.
It's not just been Citigroup (C) either. Yesterday I legged into some Boeing (BA) $39.74 -2.19% August $40 puts for $1.20 and current offer is just $1.50. I would have been better off shorting the stock on a more short-term basis.
These observations have me adjusting my trading strategy near- term in the puts I buy. Yesterday I made the "adjustment" and profiled the General Electric (GE) $30.07 -4.29% September $32.50 puts. I like the "performance" of these better and still have an extra month of expiration over the August expiration than enables us to make further observations from the bond market over time and perhaps look for additionally lower targets if conditions continue to deteriorate.
Here is a quick look at the technical setup for traders that may have taken this bearish trade in GE yesterday.
General Electric Chart - Daily Interval
Shares of GE made a nice move higher in recent sessions, but found some suspicious resistance on Wednesday, right at the 50% retracement level. Yesterday's lower YIELD bond action hinted the market was getting more defensive and stashing some cash back into bonds, which might have had investors pulling some bids in stocks and creating some pullbacks.
Looking for a "filling of the gap" that was created July 29th, a bear could leverage off the $32.39 level and begin targeting a $28 level. With retracement overlaid, we can see the first "hurdle" for a bear is to have GE break below the $30.18 level, then a second hurdle at the 50-day MA exists at $29.34.
I do think a trader needs to at least buy September expiration right now, especially with a ramped up MACD in GE's daily chart. However, if I were to get a dramatic decline to $28 near-term, even though I bought September expiration, I would look to lock in some gains. Then look for a bounce back to $30.18 as another entry point.
I think bearish traders really need to be trading targets. In recent sessions, stock held up rather well despite weaker than expected economic data. Current action hints that some of these bearish traders that were rather aggressive with their bids in order to cover some overly short accounts have pulled their bids and looking to still cover, but on some lower price action.
As such, bears entering new positions in the past couple of days should be disciplined with their targets. There was some "frustration" among bearish traders in recent sessions that stocks were not falling sharply on weaker economic data. Keep that frustration in mind when/if the stock eventually achieves your initial bearish target and don't take on the feeling that the stock has a lot more downside than you originally thought.