ADM Options Bears Banked Impressive Profit in Under 3 Days

ADM was seeing resistance at the 160-day moving average

Managing Editor
Oct 3, 2019 at 12:36 PM
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Subscribers to Schaeffer's Weekly Options Countdown just scored an easy profit on the Archer Daniels Midland Co (NYSE:ADM) weekly 10/4 42-strike put. Below, we'll explain why we expected a big downside move for ADM shares, and how the winning trade unfolded.

At the time of our initial recommendation this past Sunday, Sept. 29, Archer Daniels Midland was struggling. The stock's September rally had recently been halted near its year-to-date breakeven, and ADM was once again testing this potential area of resistance, which was also home to its 160-day moving average.

There was also excessive optimism priced into the food name, which had potential to exacerbate selling on the shares, should sentiment begin to shift. Specifically, ADM's Schaeffer's put/call open interest ratio (SOIR) of 0.30 registered in the 12th annual percentile, meaning short-term speculators had rarely been more call-skewed.

It also looked to be an attractive time to purchase options premium on Archer Daniels Midland stock, per its Schaeffer's Volatility Index (SVI) of 21%, which ranked in the tame 23rd annual percentile. In other words, short-term options were pricing in relatively modest volatility expectations.

In the wake of our recommendation, the stock dropped quickly on Tuesday, Oct. 2, as the broader market sold off on disappointing U.S. manufacturing data. This sent ADM further below historical resistance, and bigger broad-market headwinds this past Wednesday, Oct. 2, had the shares gapping lower at the open. This downside move allowed subscribers close out of their positions, and lock in a 100% profit in under three days.

Daily ADM Since May with 160ma and Entry Exit dates

 

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