December 21, 2018

General Mills May Be A Safe Bet In These Turbulent Markets

Stock markets around the world continued to slide Friday as a last-minute Santa Rally continued to look increasingly unlikely. Adding to worries triggered by the Federal Reserve, President Trump is refusing to sign a stop-gate spending bill unless he gets border wall funding, sparking fears of a weekend government shutdown. U.S Defense Secretary James Mattis, largely seen as a moderating influence on the president, also resigned overnight, extending political tensions after Trump announced a decision to withdraw U.S. troops from Syria.

*Source:  Seeking Alpha

In this very difficult trading environment, let’s consider General Mills (Ticker: GIS):

The VantagePoint platform recently indicated upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average on December 20th.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position on the same day.  This indicator measures strength and weakness for a 48-hour period, in this case, strength.  The move to the GREEN position further makes the case for a potentially bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength.  I want to play the VP bullish indication.

Strategy Discussion

If you are strictly a stock trader, simply buying GIS in the $39.25 area is a prudent move.  You are anticipating a move to the upside.  It is always a good idea to enter a sell-stop order to mitigate potential losses.  Placing that sell-stop in the $38.00 area will achieve that goal.

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  You will first want to calculate your target strike.  In order to do this, you will need three pieces of data:  current price, expiration date and the implied volatility associated with that expiration date.  For GIS, that yields a targeted strike of ~$42.00.  You may want to consider the GIS January 18th regular monthly expiration 40/42.50 call spread, buying it for $0.60.  The most you can lose is the premium paid and the most you can gain is the width of the spread less any premium paid.  Max risk = $0.60 and max reward = $1.90.  This means that you are getting odds of 3.17:1.

Position Update

Recall earlier in the week our indication of bearish momentum in AEP.  We highlighted an opportunity in the January 18th regular monthly expiration 75/77.5 put spread.  We were looking to buy it at $0.90.  Here’s the chart today:

You can see that AEP has held its ground this week.  That’s largely because the market is exhibiting extreme weakness and utilities will act as a bond proxy.  If the market finds its footing and rolls back, AEP is set up to really tank.  We are holding this position for now.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

If you would like to learn more about the VantagePoint platform and take advantage of the exclusive offer that our clients enjoy, please visit:

https://discover.vantagepointsoftware.com/prosper-demo/

 

about the author:

Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

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