CAR: A Stock Warren Buffet Would Love

Sometimes when you play options, you’ll eventually run into a boring stock like CAR:

The Technical Analysis for CAR

CAR is boring for two main reasons. First, it’s held its upward trend all the way from February to May. It just keeps slowly moving up. It’s one of those stocks Warren Buffet would love: Buy early and hold forever. But for an options player, a stock like CAR is pretty boring.

Second, CAR simply has no interesting indicators or candlesticks. Without any significant candlesticks or gaps, CAR seems to have a low likelihood of reversing its pattern.

My go-to indicators, RSI and ADX don’t show anything interesting either. While RSI is a little high, an analysis of the RSI shows that it’s been high basically forever. CAR is just a high-RSI stock.

However, it is important to note that whenever CAR falls (which, by the way, don’t count as true falls, as these falls are short-term and still within an overall upward trend), the falls can be linked to extremely high RSIs, such as those around 80. In other words, the only time CAR falls is when the stock is overbought. At the moment, CAR is not overbought.

My Prediction for CAR

My prediction for CAR is probably the same as a fundamental analyst’s: It will continue its boring path upward. It would be nice to see some change of pace, but that’s unlikely in the near future.

For playing options, CAR is boring. But boring has its uses.

My Move | CAR Naked Put

Any stock that moves smoothly and consistently upward is suited for selling naked puts. That’s exactly my plan with CAR. So as not to eat too much into my margin (which I accidently did with AOL's short strangle), I’ll only be selling 2 puts this time. It’s a tiny profit, but done every month, a naked put strategy can bring in consistent income. With its current high, AMSWA offers put options at a reduced price. I will buy a one-month put option at the strike price of $10. Should AMSWA continue its bearish trend, my put option will quickly increase in value (because it is already in-the-money). I’ll by selling 2 put contracts on CAR at the strike price of 52.5, bringing in $120 worth of income each.

Profit from selling 2 puts at 52.5: ($240)

Net profit of put strategy: ($240)