New Trade - LVS

Just put on a new trade today - a BEARISH one. I like this because my other positions are bullish and in case this market turns around and starts dropping quickly on us, I'll have some protection with this trade.

I got into LVS, here's the chart:

First of all, we're into earnings season now, so it can be a wild ride. However, the earnings on this stock is not out until after the trading day of November 10th, so we've got some time for this to work.

Looking at the chart you see that it had a nice run up and the high was that black candle. If you just think about what that candle means, along with the huge relative volume that accompanied that day you'll realize that:

1. The price gapped up from the previous day

2. However, after the gap up, it only went a little higher than the open

3. Then the rest of the day it traded down down down

4. This was done on big relative volume

So, by looking at that candle we can see that after it opened, the rest of the day the sellers stepped in and kept selling this stock lower and lower. Then six trading days later the sellers pushed the price back below the recent support level around $18.30ish. The price then dipped down to approx $14.40ish, went back up to that old support/new resistance level and is now looking like it's rolling back down from that new resistance level.

I'm looking for this stock to get back down to the $14.40ish level or lower.

In addition to that price action, I looked at a few other items to help determine the bearish bias I have on this stock, these are:

1. The stochastics indicator is high and is rolling over - pointing to a possible drop in stock price.

2. The Point and Figure Chart on www.stockcharts.com puts the target for LVS at $8.50

3. Stocks in the same industry group are getting weaker as well, such as: WYNN & MGM.

I don't think the stock price is going to drop to my target within 2-3 days, but that would be splendid if it did. I think it'll probably just float down there as there might be some good market strength due to earnings in general. So, I didn't take an aggressive trade.

Here's the trade I entered:

A November Bear Call Credit Spread. I sold the November 19 Call Option and bought the November 21 Call Option for a credit to my account of $0.57 per contract.

The nice thing about credit spreads is that I have quite a bit of flexibility when it comes to price action. Here's some possible scenarios:

A) The stock drops like a rock to $14ish within a few days - I would exit and take profit

B) The stock drifts down to $14ish taking a couple of weeks - I would exit and take profit

C) The stock just drifts sideways between 20 - 15 - I would let time decay kill the values and take profit once I realized 80% of the initial credit (i.e. I could buy back the spread for $0.11 per contract)

D) The stock goes completely opposite of what I thought and blasts through the 19 price that I sold - initially I would have a loss (and then would have to do some other trading to "fix" it)

As you can see, there's flexibility in credit spreads. 3 out of 4 scenarios benefit me, where as if I just flat out bought a put option, then time decay would be working AGAINST me rather than FOR me.

We'll see what happens from here...