Chart of the Night – GME

I will be watching [[GME]] tomorrow as it’s a approaching resistance at $45.75:

The stock is neither oversold or overbought, and while it’s momentum is very much negative, a potential reversal may be in the works (the plus & minus lines starting to converge on the DMI).

The immediate trend is bullish, yet it has not broken the longer term downtrend nor the aforementioned resistance. Should it accomplish both of those (aka. close above $46), it has room to move up to $49, which the next resistance level. Entering this trade @ $46 with a 1:3 risk:reward ratio, a stop should be set at $45.

On the bearish side, entering @ $45, a similar 3 point move is possible, with a lot more if support at $42 is broken.

One thing to consider, since we’re not sure on either direction, is a vertical option spread. Since my initial bet here is bearish, I would look at buying 45. Puts, while selling 40. Puts at the same time (of same expiration). [For example!]

If the trade goes my way, the 45. Puts will increase in value faster than the 40. Puts. While this limits reward, the major benefit is limited risk: if the trade goes against me, the short puts will hedge the position (up to a certain point).

UPDATE:

What’s working:  [[BWLD]], [[GME]], [[PBR]], [[VLCM]] puts.

What’s not:  [[BIDU]] puts; any and all calls, ex.: [[ALK]], [[DRYS]].  Hindsight says I’m an idiot for not selling those yesterday, especially DRYS after a big move like that.

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