Tuesday, July 2, 2013

TSN: Chicken no more

Update 8/29/2013: I'm a bit late in catching it, but TSN broke below its 10-day price channel on Aug. 26, busting a roll that has been on the shelf since Aug. 16 waiting for a new upside breakout.

My TSN bull position was structured as short vertical spreads expiring in August and sold for credit. They expired without value. Under my rules, I wait for a fresh breakout in the direction of the trade before rolling an options position forward to a new expiration. That breakout for TSN never came.

During the 45 days I held the position, TSN shares rose 18.9% for an annualized gain of 153.5%.

The options in my position yielded 19% on risk, or 154.3% annualized. 

A side note: The options and the shares had nearly identical results. The benefit of using options is that I can control the equivalent of many more shares by investing far less capital than would be required if I bought the shares themselves.

Tyson Foods Inc. (TSN) on May 21 broke above its 20-day price channel and confirmed the bull signal by trading higher the next day.

The trade looked good in my analysis, "TSN: Call me chicken", but I passed on it. The $25.22 breakout level was close to a major, if ancient, peak of $26. I decided to pass on the trade, but added, "I've put a marker down on that peak and will treat a break above that level as a bull signal, using my normal rules."

The break above that historic resistance level came yesterday, July 1, and was confirmed in trading today.

Nothing has happened to change my mind about TSN, so I've opened a bull position, structuring it as a short vertical options spread expiring in August, short the $26 put and long the $24 put. The position can fall 3.5% and still be profitable at expiration. The maximum potential yield is 19%. The leverage is 3:1.

References My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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