Explore Your Options by Jay Kaeppel
It seems to me that when a stock makes a double top, it would be a good opportunity to enter an out-of-the-money calendar spread. Is that correct? And if so, is there a set of rules I can follow to exploit such opportunities?
The beauty of a double top is that it provides a trader with an objective “line in the sand,” that is, as long as price remains below the previous high, the trend can objectively be designated as “sideways to lower.” And if price does break back above the previous high, it is an objective sign that the initial catalyst for the trade has failed and it is time to cut bait ...