Options Bears Cash Out as Molson Coors Stock Slides

TAP stock's chart looked ugly at the time of our recommendation

Feb 8, 2018 at 2:22 PM
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Subscribers to our Weekend Trader service recently doubled their money on Molson Coors Brewing Company (NYSE:TAP) April 90 puts. We're going to dissect the options trade below, looking back at what originally attracted us to TAP and how the stock performed after we recommended the puts.

We entered the trade back on Jan. 16, when the stock was trading near $85. The shares had been trending lower for over a year, and were about to meet up with long-time resistance at the 40-week moving average -- which at the time coincided with a trendline connecting lower highs over the previous year. As such, the technical setup certainly indicated more downside was ahead.

Further illustrating the security's weak technical footing was the fact that two huge rounds of short covering had occurred in the months before our recommendation -- yet they did nothing to alleviate selling pressure. Despite all this, half the analysts covering TAP still had "strong buy" ratings in place, suggesting Wall Street had been slow to react to the stock's slide, and an unwinding of optimism could exacerbate its downward trajectory.

It was also encouraging that near-term options contracts were attractively priced. This was according to Molson's Schaeffer's Volatility Index (SVI), which was near an annual low at the time, hinting at extremely tame volatility expectations.

As we predicted, the stock's downtrend stayed in place, with the 40-week moving average again blocking a breakout attempt throughout January. We finally closed our position on Feb. 7, as TAP touched 52-week lows, allowing options traders to capture a 100% profit on the put trade in under a month.

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