Observing a particular trend over a 6-week period often points to what might happen next, or what might not. A good case in point is the chart of Monsanto (MON).
The two sessions of August 23 and 23 both opened above resistance of $107.50 but closed below. Since mid-July, the stock has been range-bound in a narrow 4-point range. The lack of any signals indicating a coming breakout confirms the likelihood that the consolidation trend will continue.
Expect to see the stock price retreat away from resistance, at least down to support at $103.50 in coming sessions. With this likely limited decline in mind, anyone who is holding MON stock may want to consider a swing trade using short calls. These are especially well-timed at the top of the swing. In this case, MON is right at resistance.
The stock closed on August 24 at $107 per share. If you are holding shares, the September 2 weekly options expire in 8 days. Timing is good because time decay will be rapid over this short term. The 107 call closed on August 24 with a bid of 1.88. Subtracting trading fees of $9, the net will be $179 based on this price level.
This well-timed trade takes advantage of the proximity of price to resistance, the current range-bound trend, and the lack of signals indicating movement outside of the 4-point range.
Michael Thomsett blogs at TheStreet.com, Seeking Alpha, and several other sites. He has been trading options for 35 years and has published books with Palgrave Macmillan, Wiley, FT Press and Amacom, among others.
