Trade Update $CMI – Taking Half off for Double, Letting Other Half Ride

by Enis April 18, 2013 2:19 pm • Commentary

Trade Update April 18th, 2013, 2:20 pm:  CMI finally broke important 110 support this week, and has sold off down to near the 200 day moving average at 103.65.  Given that my trade is now a double, I’m going to sell half, and leave the other half of my position on since I do view this stock as a leader on the downside.

Action: Sold Half of the the CMI ($106.00) May 110 Put at $6.40 for a double, leave other half on

Trade Update April 10th, 2013, 11:33 am:  CMI’s rally so far this week has obviously caught me by surprise as it is up 5% since I initiated this trade on Friday.

However, I still expect global industrial weakness to weight on CMI’s late April earnings report, so I’m going to use this recent bounce to turn my long put spread into just a long put position.

Action: Bought the CMI ($117.10) May 100 Put for $0.40
New Position:  Long the CMI May 110 Put for $3.20

CMI is slated to report earnings on April 30th.  That is the catalyst I’m watching for a break of $110 support if it holds up in the interim.

Original Post April 5, 2013:  New Trade $CMI – Crucial Level in Play

I targeted the important 110 support level for a trade in CMI that I took off last week, as I expected global industrial weakness to affect the stock.  What to do now that the stock is around that level?

My fundamental thesis has gotten even more confirmation in the past week, as weak U.S. data was added to already weak Asian and European data points.  But on a technical basis, the stock is very close to important 110 support, as shown on the 1 year chart:

1 year daily chart of CMI, Courtesy of Bloomberg
1 year daily chart of CMI, Courtesy of Bloomberg

With the broader weakness we have seen in materials and industrials, and poor guidance recently from FDX and CAT, I expect CMI to break that level in short order.

Here’s the trade:

TRADE: Bought the CMI ($111.40) May 110 / 100 Put Spread for $2.80

-Bought 1 May 110 put for $3.85

-Sold 1 May 100 put at $1.05

Break-Even on May Expiration:

-Profits of up to 7.20 between 107.20 and 100, max profit of 7.20 at 100 or below

-Losses of up to 2.80 between 107.20 and 110, with max loss of 2.80 at 110 or above

Trade Rationale:

I expect the 100-102 area to act as support.  I think a break of 110 though will cause a quick move lower.  In case it does not, May options capture earnings, which will be important as a potential catalyst as well.