On Friday, October 3 2008, as the Dow Jones erased all 300 point advance it recorded just as the House vote got underway shortly after the midpoint of the trading session moments following the vote in the House of Representatives to pass the credit market bailout.

Coca Cola (KO) was spotted a bearish engulfing candlestick formation after Friday’s close. The long tail characteristic of the candlestick couple with strong resistance at 55 levels, further strengthen the possible bearish reversal. With most of the analysts still recommending a strong buy; it leaves plenty of room for a downgrade. As a contrarian trader, I decided to take this trade if the KO is trading lower the next session.

On Monday the stock was indeed trading lower as the global panic initiates a sell off. I bought only 3 contracts of Nov 52.5 Puts at $2.70. The reason for buying so lightly is that the market remain very volatile and if you have been following; there were many big swings of a few hundred points, which makes it difficult to trade.

Economists expected the U.S. economy to fall into a deeper, longer recession that would arrive earlier than previously predicted. Even with landmark initiatives like the largest government-sponsored bailout of financial services in history, the mood in the stock market can be expected to remain volatile.

Deutsche Bank downgraded Coca Cola Co. to hold from buy, saying the company faces slower volumes at home and abroad as well as currency headwinds. The broker said it expects Coca-Cola to flag a tougher trading environment in the fourth quarter.

By closing, the day the Dow recorded its largest point-loss in history. Consumer companies in the Dow set the tone for the pullback, Coca Cola fell nearly 2%.The moves suggested that investors worried that consumers would cut down spending even on basic necessities, or trade down to generic or store-label brands.

Shares of Coca Cola Co., the world’s largest beverage maker, had declined to a new year low on Monday, following the analyst downgrade and it continue with another 4.8% losses to closed at 49.10 as the broader market tumbled on Tuesday.

The Nov 52.5 Put options have swelled to $6.00, a trailing stop was triggered at $ 5.30 with a profit of $2.60 or 96.3% in just three trading days.

Even after major central banks joined the Fed in an unprecedented global rate cut, stocks ended lower Wednesday after a volatile 400 point swing in the Dow. Triple-digit moves could continue on Thursday. It is better to take whatever profit that is lying on the table and the best way to do it without the emotions is using a trailing stop. If Coca Cola continues to move south, I can always roll over to buy the lower strike puts at the same time lower my risk.

“Unless you are prepared yourself to profit by your chance, the opportunity will only make you ridiculous. A great occasion is valuable to you in proportion as you have educated yourself to make use of it” - Orison Swett Marden (1850 - 1924)

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