Green Shoots vs. Red Chutes? An alternative route to positioning as a gruff ol' bear or as an optimistic and noble-minded bull espoused by the media that traders might consider is a long curve, non-directional strategy such as a strangle.
If well-priced option premiums warrant the purchasing of a long curve or "smiley face" position (named after its beneficial positive gamma count when shares move dramatically), the trader ultimately shouldn't care much whether the bulls or bears emerge the victor-only that one does so with some price muscle in the stock.
When a stock is also exhibiting a neutral consolidation pattern on its charting tea leaves which suggests a directional victor will emerge shortly-establishing a delta neutral position like the long strangle makes all the more sense and potentially much more "cents" in the coming days.
One name which looks to illustrate this combination is the up-and-comer, China-based fertilizer concern China Green Agriculture (CGA). The small capper has held the interest of value and growth oriented camps like the Motley Fool and Investors Business Daily in recent months.
Figure 1: China Green Agriculture (CGA) IV / SV
Checking above in Figure 1, we see implieds for the 30 to 60 day range, which boils down to November premium, is squarely centered on fair value relative to the stock's 20 and 100 day movements. Versus shorter-term readings, option prices look quite pricey with current implieds from about 70% to 75% and well above SV levels near 30%. However, in consideration of what's been said already about technical situation and in looking below, the observation is extra weight is given to the longer-term gyrations in shares and hence, premiums look more or less fairly valued.
Figure 2: China Green Agriculture (CGA) Daily Triangle
Technically speaking, China Green Agriculture and its symmetrical triangle seem a nice fit for either some unthinkable green shoots to continue or perhaps the more seasonal "red chutes" type to take hold of shares shortly. Stock volume has picked up in recent months to afford a daily average of 925K.
The volume reflects decent liquidity for this type of potential high flyer (bulls) or crop duster (bears) bound for terra firma once more. The fact shares have already seen one bouts of momentum such as the price run preceding the current pattern, make it seem all the more likely CGA will react aggressively out of the consolidation.
Figure 3: CGA Ratio Nov 12.50 C / 10 P Strangle
While I can't "rec or wreck" as only a broker or the guy on television can take on that role, I don't mind giving out some observations which might lead to further due diligence by traders. And in turn, that might lead to a smiley face or two that makes sense and "cents" to a select few doing the required homework.
Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler's Forum
The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
[ 
