Option Trade Idea For Buying CMG Puts

By Christopher Ebert

Below is an example of a trade alert that went out for Fun Money on Friday morning. Subscribers receive structured option trade ideas with trade alerts so you know exactly what to do for maximum profits.

Per our update from Wednesday, CMG has traded up into a resistance zone. If resistance is hit near 280/285, the same strategy as NFLX would provide a low-risk opportunity for quick profits.

As a result, we are going to buy puts according to the following strategies.

BUY 3 DEC 22 $240 PUTS @1.25

An alternate strategy would be to open a ratio bear put spread.

SELL 1 DEC 22 $280 PUT @ 11.60
BUY 2 DEC 22 $270 PUTS @ 6.90

This trade costs very little to open but has nearly unlimited profit potential if CMG falls below $260. A re-test of the $240 lows could produce gains in the $2,000 range. The only substantial risk with this trade comes in the last few days preceding expiration, where a maximum loss of $1,200 is possible. But that's only if the trade is held through expiration and CMG manages to close at exactly $270. The danger zone is $260 – $280, but losses in that zone are likely to be minimal anytime before about December 14th, a week before expiration, and the trade can be closed early if that happens. A small loss of the net premium is also possible if CMG rockets higher after the trade is opened, causing all of the options to become worthless.

CMG weekly chart

With CMG:

We are buying open (3) December 22 $240 puts at $1.25

Alternative Trade 2: We are selling to open (1) December 22 $280 put at $11.60 and buying to open (2) December 22 $270 puts at $6.90