As we anticipated last night HO did pop higher towards the right shoulder of the developing H&S top pattern, and it was met with heavy resistance.
This is another piece of the puzzle to our bearish case, confirming our view. So lets get short - Here is how to play it:
- Short Dec HO 1.7752
- Buy the Dec HO 1.78 calls for .051 - Delta is .51 on these
- Once the short moves 5cents lower, sell a put 5 cents out of the money - You will get over 3 cents for it - So your net cost of hedging is only 2 cents, while our target profit is 10 cents - This would give us a R/R of 5-1.
If HO reverse higher & breaks above the right shoulder, our thesis is wrong and we must exit. So close out on an hourly close above 1.815.. In this scenario, your loss wil be about 2 cents as well, so we still maintain our 5-1 R/R profile.