Tuesday, February 16, 2010

Dean Foods (Synthetic Long)

I am looking at Dean Foods as a possible long. I like the idea of buying the Jan '10 $15 synthetic position. As you will from the charts below, Dean Foods had a recent $4-$5 sell off. More recently on a downgrade from Deutsche Bank on an earnings miss. I want to take a look at three time frames: 20 day hourly, 1 year daily, and the weekly chart.

First lets look at the daily chart:

You can see on the day of the earnings the stock sold of about $2.5 points and then another $1 or so when the downgrade happened the next day. The low that was put in stands at $14.27.

Now lets take a look at the hourly to get a better picture of the buyers and sellers intraday. In this view it looks like that $14.27 could have been the capitulation low. As strong volume of about 4.2 million shares came in to defend this stock from going any lower.

Whats the game plan? I want to buy 5 synthetics, but I want to set a tight stop at $14.

 Entry: $14.50

Stop: $14

Target: $17.50

 Risk: $230-$300

Reward: $1,500 ( RvR 1:5)

I will be looking to buy 5 Jan '11 $15 synthetics @ a credit of about -$0.50 for a total credit of about $500.


  1. I missed the entry on the 16th after I posted this. But today the stock has pulled back to my entry price and I entered into the trade. I ended up receiving a credit of -$0.40 per synthetic. For a total of $225.

    Also above I put that the total credit was $500, that is on 10, my mistake.

  2. I also ended up closing this position for two reasons. It was about double my limit set and because there are a lot of stocks that are stronger. I had originally set a stop at $14 and then moved it up to my entry price of 14.5 as it traded up near 15. So in relation to my portfolio limits I would had cut half of the position to to be in compliance with limits. I cut the other half of the position because I was stopped out.