Click on the Chart to EnlargeThe chart above is CL which is Colgate-Palmolive. I have had a put option on this for a couple weeks now and it is somewhat profitable currently though far from its maximum gain.
The pattern here is that the stock broke down sharply from its early September high pretty much signaling that a larger corrective/decline is occurring. Now the stock has made a choppy advance back up to the 20 day moving average and formed a bearish engulfing pattern yesterday. Based off this pattern I think that another sharp decline is likely, and will take the stock below 72.00.
My recommendation is to buy an Oct. 75 Put on CL at a limit of 1.60.
The current price of the option is 1.50. If the stock gets to 72.00 before expiration on Oct. 17th, then that would be 100% gain or better because the option would be worth a little more than 3.00. In this case I would not suggest using a stop loss on the trade, so the risk is 100%. but the reward should also be 100% or better.
The exit strategy I would suggest is placing a limit order for 100% gain after entry or exit on expiration day if 100% is not achieved.
Pete
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