Emerson Electric (EMR) – A Bearish Trade

Emerson Electric Co. (EMR) is a diversified global technology company. The Company is engaged in designing and supplying products and technology, and delivering engineering services and solutions in a range of industrial, commercial and consumer markets globally. The Company operates in five business segments: Process Management, Industrial Automation, Network Power, Commercial and Residential Solutions, and Climate Technologies. The Company’s production operations are electronics assembly, metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly.

After recent retracement rally, EMR has been consolidating below 200dma and around 50dma. On Thursday and Friday last week, EMR closed below both 50dma and 20dma and based on the price action I see a potential bear pattern emerging (at least for the short term).

So here is how I am planning to trade EMR-

  • Buy to Open Oct Monthly Put 65
  • Sell to Open Oct Monthly Put 60

This vertical debit spread will cost $120 which is also the maximum risk. The maximum gains are limited to $380 or >300%. In order for this trade to make money, EMR needs to be below $63.80 by Oct expiration ($65-1.20 =$63.80). My stop loss for this trade is $65.75, just a bit above 200dma. My initial profit target is around $63 i.e. if EMR drops to $63, I will place a mental trailing stop order (which will continue to maximize profit if EMR drops, but will close the trade if EMR bounce back above $63). These rules are just for guidelines.

If you decide to follow this trade, make sure you post in the comment section and follow-up via staying in touch. I usually post short updates on Facebook/Twitter.

Should you have any questions, kindly write those in the comments sections and I will be glad to answer.

Disclaimer- As of this writing I am in an EMR bearish trade position (a different combination of spreads though). I might open, change strikes, close etc, anytime without prior notice. AS ALWAYS, All e-mails are for educational and entertainment purpose only. These are NOT trade recommendations. You should do your own due diligence and follow your own trading plans.






3 responses to “Emerson Electric (EMR) – A Bearish Trade”

  1. Cedric Avatar

    great analysis! will try and follow!

  2. ramiro Avatar

    I’ll follow you.

  3. OptionPundit Avatar

    EMR trade is already profitable and now a trailing stop should be in place.

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