$TRV – A Bearish Options Trade On Travelers Companies

Travelers Companies Inc. (TRV) has reaped the benefits of this Bull run in the markets to new all-time-highs. Being a DOW component, TRV is owned by many passive fund/money managers. Now it seems that TRV is on the verge of a Bearish Breakout from its potential Double Top/Descending Triangle pattern.

Here is the daily chart of TRV:

TRV - Daily Chart
TRV – Daily Chart

Here’s my trade on TRV:

Buy Apr ’14 Puts on TRV @ 75 Strike.

The Puts are currently selling for $3.10

My target on TRV is $68

The Apr ’14 options will give you enough time to get the trade right.

Recommendation: SELL

Price Target: $68

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  • NoviceTrader

    Hi WSF,

    I was under the impression that options that expire soon have more skewed values and hence potential for more profit. The value of options depends upon Time, Risk free Int Rate & Strike price. So ideally more time means options have been priced correctly. Can you please enlighten me the reason your expiry dates are well above 6-8 months?

    Thanks
    NT.

    • wallstreetfool

      You’re logic would be correct if all the option pricing components: Stock Price, Time, Imp Vol, etc.. remained CONSTANT. Since that is not the case in Real World, and all those variable constantly keep changing, the option price changes accordingly. If you BUY a Call Options, when the price of the underlying security (Stock) goes UP, your Option price also moves UP. The reason I prefer longer duration options is because, the more time you have, the more the chances of getting the trade right. AAPL wont hit $1000 next week. But the possibility of AAPL hitting $1000 by the end of 2014 is pretty high, given the TIME available.