Ichimoku Stock Option Trade Setup: MEE 9-19-10

MEE has close below the Ichimoku Kumo Cloud on the weekly timeframe.    If price moves lower the daily will be setup for a bearish Ichimoku trade too.
See the charts below:

Here is the Option chart:

Volatility right now is low so you can look at buying a straight put without it being “expensive”.   Right now, only Oct and Jan 2011 options are available.   If we look at the Jan 2011 25 Put. It will cost roughly 1.64.     According to the charts, our estimate is that MEE should reach 25 by end of October with a stop around 32.43.    This is roughly $3 for a stop with a $3.00+ target.   Therefore it is a 1:1 risk/reward ratio.
If we enter the option TODAY and exit at end of October, if the stock is at 32.43 then we will lose roughly 87.43 (50% the cost of the option).    If it is at 25 by end of October, we will make roughly 112.94 .
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About the Author Manesh Patel