Traders do not have a crystal ball.  Traders try and get an “edge” and then maximize his/her return to risk.  A technical trader may lean on support/resistance levels or a fundamental trader may dive into various SEC filings.  In either case, you are looking for that “edge”.  Essentially in this case you a looking for a reason to or a level to enter.  For me as an options trader, it’s a numbers game.  Find a favorable set up based on a combination of technical and fundamental analysis, maximize return to risk and repeat as many times as possible.  Let’s see what our approach to Citrix (CTXS) was today.  This is a technical set up that may take a few days to play out so we want to buy ourselves some time.  Take a look at the chart:

 CTXS_Chart_11-23-15.png

This is a classic set up that typically takes place in the few days after big news. 

From the Motley Fool:

“Citrix says as a result of its operations review, it determined “a spinoff of the GoTo family of products into a separate public company is in the best interest of all stakeholders, allowing both companies to enhance its strategic focus and respective competitive positions, while permitting Citrix to improve operational efficiency.”

In the end — the unfortunate layoffs notwithstanding — there’s no denying this is an ambitious effort to drive higher profits, achieve sustainable growth and, ultimately, maximize shareholder value. But given the uncertainty, cost, and amount of work these actions will take to fully implement — from the employee severance, spinning off a promising line of products in GoTo, and narrowing Citrix’s focus to a small number of core remaining products — it’s hard to blame investors for taking a step back as they process today’s news.”

So that is a fundamental piece of evidence.  I highlighted the technical entry as well.  Essentially, when a stock experiences a “gap” and subsequent retest of the gap, institutional paper will defend that gap.  Does it happen every time?  Of course not.  But here’s an additional piece of technical evidence:  The top of that gap bar coincided with the 50DMA and failed.  Again, this provides us more bearish evidence. Now that we have determined that we have a bearish bias, we have to find out if we can put something on that makes sense given our reward to risk parameters.  We signaled the following:

Sell (opening) the CTXS December 70 put
Buy (opening) the CTXS December 72.5 put

For a DEBIT of $0.45 or less

This signal is not GTC and is valid with CTXS trading $76.15 or lower.

Should we get our price, our reward to risk would be 4.56:1.