A Bullish Setup In Diageo

The VantagePoint Trading Journal On DEO

VantagePoint recently indicated a potential downside breakout in Diageo plc (ADR) DEO due to a bearish crossover on Jan. 26. 

Using the predictive indicators within the VantagePoint platform and its predictive AI technology, we can point out two significant things. First, we have a bearish crossover indicated by the blue predictive indicator line crossing below the black, simple 10-day moving average on Jan. 26. We can combine that with the VantagePoint propriety neural index indicator turning green. This indicator measures strength and weakness for a 48-hour period. The move to green position indicates weakness, and further makes the case for a potentially bearish scenario. That’s why one could consider entertaining a setup to the downside.

Strategy Discussion

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

The sale of a credit call spread may be one way to approach this situation. It is optimal to collect the most premium in an options set up like this. Selling a strike close to at-the-money and buying a further out call as protection could be most prudent. Consider the sale of the monthly March 145/150 call spread collecting $1.50. This will yield a risk to reward ratio of laying odds of 2.33:1. This is calculated by taking the width of the spread. And then less any premium collected and dividing by the premium collected.

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

VantagePoint is an editorial partner of Benzinga