An Option Trading Case Study

A case of bullish reversal- this is what Merck achieved March of 2009. Merck and General Motors shares rallied in lieu of rising U.S. stock indexes. For 4 consecutive days, investors have seen Merck shares having an increase, the best one the company had since November.

Rising concerns over the car and health care industry has made it difficult for major brands to accumulate funds and entice investments. An upward momentum seems to be impossible, with many people seeing finances going down the drain. The recession bug has also increased negative views and speculations, therefore making the road more difficult for traders.

On the other hand, upon seeing a reversal on the part of Merck and GM (General Motors), investors have seen the road newly-paved. Within said period, the Dow Jones Industrial Average rose 0.8% and ended the week at around 9% higher. The S & P 500 likewise added 5.81 or an estimated 0.8% to 756.55, all these despite a weaker trend on technology stocks and shares.

The health-care sector is also a valuable element in said trade, resulting to higher major stock indexes. Optimism also played its role, as investors have seen other income-generating opportunities behind the Merck- Schering Plough merge.

Gamblers and risk-takers alike have maximized the opportunity. The so called ‘bullish reversal’ has caused traders to wait for Merck shares to break above $ 23 per level before buying. By the time Merck shares reached 22.50, several investors end up buying call options at $ 2.05. As a result, having said shares close at $ 5.10 the next day, profits of around 3 dollars were eventually made.

The said movement was said to be rare, as experts want to stress. All the while, many market players believe that such movement was tentative and temporary. Other speculations also spread, downplaying the idea of market trends and eventual recoveries. On the other hand, not all investors share the same predicament. For the remaining believers, this bullish reversal can also be a sign of better times ahead.

Trading rallies vs. Bullish Reversals

While bullish reversal proves to be a success, it is also indicative of risks and chances. Every movement can spell a failure or a success for various sectors and industries. However, these scenarios may not last long as one would want to wish.

Trading rallies are also signs of potential income-earners. While many professionals and amateurs benefit from these trades, perfect timing is also a crucial and necessary element. As for the case of other trade players, it also appears that trading rallies are positive results of restructuring or plan changes.

And while the two scenarios share certain similarities, the differences are also very obvious in a way. For one, the sectors involved do vary, as much as the factors affecting said occurrences. In the end, what seems to be visible are these two (trading rallies and bullish reversals), appearing as hopeful signs of change.