Charting put prices beside an equity breakdown

Two charts, two jobs

The piece treats the listed prices of puts and calls as an options-price-chart. That series is read for the contract's own trend instead of inferring direction only from the underlying.

Editorial interpretation: keep the two jobs separate. The underlying supplies the directional hypothesis. The listed put is treated as timed only after it prints its own positive-stochastic-divergence and a short-versus-long moving-average cross.

The stock states the breakdown

As of mid-January 2005, Newmont Mining was described as having broken the neckline of a head-and-shoulders top and pulling back to test that neckline as resistance near 43. A formation high near 50 and a neckline at 43 were used to project a minimum downside of about seven points toward 36.

The listed put as the vehicle

March 2005 40 puts, then one-strike-out-of-the-money given nearby 45 and 42.50 strikes, were offered as an options expression of that breakdown view.

The text records conflicting selection rules for directional buyers, ranging from high-delta in-the-money contracts and at-the-money options near expiration to cheaper out-of-the-money contracts and mid-priced contracts chosen to shrink percentage bid-ask cost. The working preference stated in the text is a contract one strike away, priced around 1.00, and within a few weeks of expiration.

Confirmation on the put chart

Divergences, recognized patterns, and support or resistance on the option chart are used to locate entries near a make-or-break-level. That zone is the chart-defined invalidation area, so the distance from entry to stop stays small relative to the intended move.

The Newmont March 2005 40-strike put printed positive-stochastic-divergence on its late-November and December declines. After a December higher low versus November, that put's 10-day exponential moving average crossed above its 50-day average in January, the ema-crossover on the contract's own closes, while a seven-ten-stochastic reading was described as oversold.

The same oscillator shape on another put

The General Motors January 40 put showed higher seven-ten-stochastic troughs against lower option-price lows from mid-December into early January. That is the same positive-stochastic-divergence shape: oscillator troughs that rise while the option prints lower price lows.

Editorial interpretation: the second contract is shown so the confirmation logic can be seen on more than one listed put. It is not a broader market claim.