Option Investor

Trade Alert - CNCT

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Time to move on...

Since the new position in Gamestop (NYSE:GME) will increase the collateral requirement above the OW Portfolio's suggested limit, it seems appropriate to "officially" close the losing trade in Connetics (NASDAQ:CNCT). We know that most, if not all, readers have previously exited or adjusted their positions in this issue and we hope that our alternatives were helpful in this regard. We remain optimistic about the long-term outlook for the company's share value and wouldn't mind a lower basis in the issue, despite the additional commitment of portfolio collateral for an extended period. With that fact in mind, we suggest traders with large account balances consider transitioning to a (short) 10-contract position in the OCT-$20 puts for a small credit. The basis in the stock will be slightly below $20, which provides additional downside margin and allows for a (hopefully successful) test of the technical support near that price. Any future movement below that level can be offset with put options (calendar/diagonal spread) or the (short) sale of stock, which can be used to "cover" the existing obligation. Only readers who are sufficiently capitalized should consider this adjustment; others can simply exit the play (as previously advised) and move on to the next position.

OW Staff

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