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Is Mercadolibre (MELI) breaking down? Let’s protect it!

I have a long stock position in Mercadolibre. Last Friday the stock seemed to break down from a narrow consolidation sideway range trend which occurred after a large runaway gap. Normally this would be a healthy move, but at the market environment like these days, the market can drag this stock down.

Mercadolibre

This break was on a low volume, so it may be a fake head, but I would like to protect this position in case this is a signal telling me that the stock is heading down.

Why down?

At this point the stock can consolidate by a pull back to 200 SMA (since it was quite overextended when I was buying it). If that happens, my stock position will be sold on a stop loss (set at 82.63 per share), but my protective puts will live on and increase in volume and make up the loss on stock and actually may turn this trade profitable.

If this break is a fake head and the stock returns back up and continues growing, I will sell my protective put (realize a loss on puts) and leave the stock to live on. If the stock continues running up it should make up the loss.

Thus on Monday I am buying the following:

BTO 1 MELI Dec17 2011 82.5 puts

Happy Trading!





4 responses to “Is Mercadolibre (MELI) breaking down? Let’s protect it!”

  1. Jeremy says:

    I’m glad I ran across this page about stock investing. Thanks for taking the time to share this with us.

  2. Randy says:

    That’s nice thinking about protecting your stock positions. I have read about it a couple of times, but never knew well how actually use puts or calls to “protect” your trade. Now I think am getting it. Thanks for sharing.

  3. admin says:

    No I did not. The stock gapped down and the put became too expensive so i canceled this trade, realized a loss and move on.

    I also adjusted some other trades for tomorrow, check today’s “Recent Buys & Sells” since I will not be posting it at this time.

    Thanks

  4. Bob says:

    I wanted to ask whether you opened this trade or not. The stock gapped down significantly so if you have opened, you should be making good money, right?

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