Trade Alert: Limit Losses in Two Positions
While it’s never fun, it’s always prudent to close out a position when it’s clearly heading away from us.
So that’s what we’re doing today with our December options in Compass Minerals (NYSE: CMP) and Cedar Fair (NYSE: FUN).
As you know, we don’t implement stop-losses often because of the volatile nature of options and because I like to give our trends enough leeway to kick in. Typically, there’s little value in exiting a position just before expiration, so we tend to give an option room to expire worthless … particularly since it happens so rarely.
But in today’s case, I want us to go ahead and preserve some capital. Both of these options are set to expire next Friday, and at this point we would need a significant move in the stocks just to be profitable. I don’t see that happening in the little time we have left.
Shares of Compass Minerals, the seller of road salt, have been moving in our direction since we bought calls on the company back in September. But even though the stock moved higher, it didn’t jump high enough to cover our cost and hand us a profit.
Cedar Fair, on the other hand, moved sideways. Since we bought our calls on the amusement-park operator in July, shares have essentially flatlined, keeping our calls from moving into profitable territory.
So let’s preserve our capital and put it to use in a new trade, which I’ll have for you later this week.
Action to take: Sell to close the CMP December 2015 $80 call option (CMP151218C00080000) at the market. At last glance, it was trading at $3.95.
Action to take: Sell to close the FUN December 2015 $55 call option (FUN151218C00055000) at the market. At last glance, it was trading at $0.45.
At those prices, we end up with losses of 24% and 83%, respectively.
We’ve had a great few weeks, closing seven positions for nice gains, four of which were in the triple digits. That includes yesterday’s recommendation to close the last half of Vail Resorts. While that order didn’t get filled yesterday, it was filled this morning, handing us a hefty 188% profit. If your order wasn’t filled, go ahead and keep it open until it is.
Including the 65% gain we took from the first half of Vail, we collected an average profit of 127% from this trade in only four months.
Before I leave you for the day, I want to quickly address a question I’ve received from some subscribers about our recent Polaris Industries (NYSE: PII) trade.
Yesterday, I mentioned that the company was still a buy at $3.25, even though we originally bought the calls at $7.20. A few of you who bought the calls at that lower price wanted to know if you should also place the limit order to sell half of your position at a 100% gain, as I recommended in the original trade.
Go ahead and place that order if you haven’t done so. While I won’t be tracking the trades at the lower prices in the portfolio, you should still follow the spirit of the original rec.
Until next time, good trading…
Editor, Precision Profits