Wednesday, May 20, 2009

GS Bear Call Spread

Goldman Sachs (GS) has been a very strong stock lately as it got to the 144 area. I think it is getting a bit heavy up here and as the market is pulling back today unable to eclipse last week's resistance I think GS could retrace back into the 120s in the coming weeks. The daily candles on GS also has a bit of a bearish tone to them the last few days. Lastly, I see some negative divergence on the MACD and RSI indicators as they roll over. I am selling a GS June call spread.

Sell the June 140/145 call spread for 1.75 or better.

Your max risk on this position is 3.25 if GS closes above 145 at June expiration.

Max gain is the initial credit you take in and keep if GS is below 140 at exp.

Your breakeven on this trade occurs at 141.75 at exp.

I think this is a nice moderately bearish trade if you expect a grind lower as I do. And of course, you can always take profits before this spread expires.

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