The Wild Ride of This Theme Park May Not be Over As COVID-19 Containment Measures Escalate
Contrarian look for opportunities to short as traders go long. Often times near-term bullish sentiment is only a matter of shorts taking profits through buying the stock, but then reload after the price has rallied for a couple of days. The continued escalation of the government’s response to the COVID-19 pandemic is only going to further push this country into a recession and maybe even worse.
For Six Flags Entertainment Corp (SIX), the realities of what the government restrictions and closures mean to their bottom line has likely not hit home. There have been some downgrades like the one by Oppenheimer on Wednesday but is SIX likely to “perform” in coming months. It just might, but that isn’t a good indication if the market is significantly lower.
Leading into the end of the week, SIX found some footing and the stock moved higher. The volume on Friday was elevated as the price finished with a spinning top candle formation. With the stock closing higher, it could be interpreted as bullish, but the bulls weren’t able to stage a bullish run following the higher open. While this formation is an indication of relative balance or indecision, Monday’s movement will give the confirmation of whether the bulls or bears were exhausted. In these kinds of markets, waiting too long may result in missing the move.
The stock is a short opportunity with a near-term target at $7. However, incorporating options provides an ability to maintain a defined risk trade with reasonable ROR. The 17 APR 20 12.50/10 long put vertical can be bought for around $1.10. That gives a potential return of $1.40, or 127% ROR, if the stock closes at or below $10 by expiration. Consider closing early if it can be sold for $2 or more.