Disclaimer: The trades discussed in this blog reflect the author’s personal strategies and decisions. These are not financial advice and should not be considered recommendations to buy, sell, or hold any financial instruments. The author is not a licensed financial advisor. Options trading carries significant risk, and readers should perform their own research or consult a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results.
I’ve been keeping an eye on Mondelez International (MDLZ) recently, and its price action gave me an idea for a bearish options trade. MDLZ has been sliding for months, dropping from $75 to its current price of $64.79. This decline seems to be tied to downward revisions of its earnings per share (EPS) projections. While analysts still recommend the stock as a long-term buy, I’m skeptical about its ability to stage a significant bounce in the short term.
Several factors contribute to my bearish outlook:
- The Downtrend: The stock’s steady decline reflects investor concerns, especially after the earnings revisions. Despite a fundamentally strong business, this short-term pressure seems likely to persist.
- Cycle Analysis: I’ve noticed a repeating 34-week cycle in MDLZ’s daily chart, where the stock tends to bottom every 34 weeks. The last bottom was in June 2024, so the next one should occur around February 2025. If the pattern holds, there’s still room for the stock to fall.
These factors suggest to me that MDLZ is unlikely to rebound strongly in the near term, making a short-term bearish position attractive.
So, I decided to open a bear put spread. Here’s the setup:
- Bought a $68 put
- Sold a $65 put
- Both options expire in two weeks
The P&L of this strategy looks as follows (as found on our options screener):
I chose a bear put spread for a few reasons. First, it’s a debit strategy, meaning the maximum risk is limited to what I pay upfront. For this trade, I need $197.50 as a margin (my maximum potential loss). On the flip side, the maximum profit is $102.50, which I’d earn if MDLZ closes at or below $65 by expiration.
The breakeven price for this trade is $66.03, giving me some cushion if the stock moves up slightly before heading lower. I like this setup because it offers a good balance between risk and reward while keeping my capital exposure under control.
And another thing: one of my favorite indicators, the Williams Alligator, currently shows a bearish alignment with its green, red, and blue lines signaling a downtrend. I’ll watch for any crossovers as a warning sign to reconsider the trade:
My plan is to hold the position until expiration unless one of three things happens:
- If the Williams Alligator shows a bullish crossover, I’ll consider exiting early to avoid further losses.
- If I realize that I have already reached a very good profit, like 75%, I may decide to close the trade early and take profits.
For transparency, you can find all my trades in the public trade log.
