Trade Follow-Up: Close 3 Positions and Add SYMC to Your Portfolio

This morning, I sent you a trade alert recommending you close three open positions in CSX Corporation (Nasdaq: CSX)Northern Trust Corporation (Nasdaq: NTRS) and Tapestry Inc. (NYSE: TPR).

Instead of letting these positions expire worthless, it was best that we closed these to preserve capital for more promising trades ahead. These were closed with a limit order near the bid price.

I also recommended that you buy put options on Symantec Corporation (Nasdaq: SYMC).

As a reminder: Put options are intended to increase in value as the price of the stock declines. But just like a call option, the risk is limited to the amount of capital you place in it.

With that in mind, let’s turn to my detailed analysis of our new buy.

SYMC is a cybersecurity company that offers solutions for large networks and sells solutions directly to consumers under the Norton brand.

Now the stock is trading at about 10 times earnings. That’s about 45% less than the market average price-to-earnings (P/E) ratio.

Keep in mind that low P/E ratios indicate that a stock is either a bargain or a potential problem. In the case of SYMC, the company is in trouble.

Also, cash flow from operations (CFO) has been negative in four of the past five years. CFO is what a company uses to pay its operating costs and reinvest in the business. Negative CFO for several years is a bad sign for problems ahead for this company.

The next big move in the stock is likely to come on November 2, the day after the company releases its quarterly earnings.

So it’s time to buy puts.

Now, put options follow slightly different rules than call options, but they still need to meet four:

Rule 1: First, to take a bearish position, one of two rules must be met: The stock market needs to be below its 200-day moving average (MA), or less than 65% of stocks must be trading above their 200-day MAs.

As of Friday’s close, both conditions were met. The S&P 500 closed 3.9% below its 200-day MA and 32% of the stocks in the S&P 500 were above their 200-day MA. That means 68% were in long-term downtrends — and Symantec is one of those.

Rule 2: The stock needs to be trading at least 10% below its 52-week high.

The blue line in the center of the chart shows the stock’s closing price as a percentage of the 52-week high. That line is at a value of 57, indicating SYMC is trading 43% below its 52-week high.

3 Trade Signals for SYMC

(See larger image.)

Rule 3: The stock’s relative strength (RS) is below its 26-week average as well. The RS’ moving average is shown as the black line in the center of the chart. SYMC’s RS is 3% below its moving average.

Rule 4: Finally, its five-day Relative Strength Index (RSI) needs to be below 50. (This is my timing indicator — it confirms the stock is breaking down.) SYMC is at 28. This is shown in the bottom part of the chart.

This all means we have a strong signal, so we purchased puts today. Here are the details I sent you earlier…

Your Trade Detail

I recommended buying the November $19 put option.

Trade Recommendation

Buy Action to Take

Stock:

Symantec Corporation (Nasdaq: SYMC)

Option Type:

Put Option

Expiration:

November 16, 2018

Strike Price:

$19

Option Symbol:

SYMC181116P00019000

Action:

Buy to Open

Order Type:

Limit Order

Duration:

GTC (Good ‘Til Canceled)

Limit Price:

$1.20 (This is in the middle of my buy range. Please refer to the below buyzone chart for other options.)

Trade Deadline:

If we are not officially filled by the close on Friday, cancel all open orders, and I will update you in the weekly market update.

Note: Do not place a market order. Set the limit order anywhere within the range shown in my buyzone chart below.

Once this order is filled, place the following order:

Sell Action to Take

Stock:

Symantec Corporation (Nasdaq: SYMC)

Option Type:

Put Option

Expiration:

November 16, 2018

Strike Price:

$19

Option Symbol:

SYMC181116P00019000

Action:

Sell to Close Half

Order Type:

Limit Order

Duration:

GTC (Good ‘Til Canceled)

Limit Price:

Whatever nets you a 25% gain based on your entry price. (Example: Sell half your contracts at $1.50 if entry is $1.20.)

Trade Deadline:

Keep this order open until it is filled or canceled.

Note: This second order will allow us to collect a 25% gain on half of our contracts if a quick move happens before I can get a trade alert to you.

Next is our buyzone chart.

Symantec Corporation (Nasdaq: SYMC)
November 16, 2018 $19 Puts

BUYZONE

Cheap Less
Cheap
Middle
(Recommended Limit Price)
Expensive Very
Expensive

$1.00
-16.7%

$1.10
-8.3%

$1.20

$1.25
4.2%

$1.30
8.3%

Use the limit price based on your preference.

If you have any questions, please don’t hesitate to email me at peakvelocity@banyanhill.com.

Regards,


Michael Carr, CMT, CFTe
Editor, Peak Velocity Trader