So both my practice trade on Yahoo and GE have flopped... miserably. I went back to using the "Christmas Cross" workspace and found that the Christmas Cross showed clearly that I should NOT trade.
I believe I will begin doing fundamental analysis to find stocks to trade (and in what direction) and then I will rely on the Christmas Cross from now on to determine when to pull the trigger. The downside to trading without the Christmas Cross is that other forms of technical analysis are fine for trading stocks, but the Christmas Cross has the precision and timing to trade options effectively.
I believe I may use the older methods when I begin trading just stocks, but for now I need to use the Christmas Cross.
On the flip side, I would have exited both trades with a small gain (around 10% GP) if I had used a trailing stop system to limit how much I could lose. Perhaps using the following approach would be most prudent:
1) Do fundamental analysis to find stocks and determine which overall direction they'll take
2) Determine the trend of the stock
3) Use the Christmas Cross for a trading decision
4) Use a trailing stop to let your winners run so that you can take profits quickly if the trade reverses
Monday, March 12, 2012
Tuesday, March 6, 2012
GE Put Option Play
GE has been in stage 3 since January, and as the market as a whole is set for a downturn, and as GE itself is due for a downturn, the timing here seems good considering GE just broke its resistance level.
Their most recent earnings release was January 20th where they beat earnings by $0.01 per share. Their next earnings release will be on April 20th, so there should be no earnings surprises to give us trouble here.
I want something in the money that will also expire next month, so we'll be going with the April $19 Put options. The current bid/ask spread is $0.90/$0.92 and my beginning position size is $1,000 or less.
I will buy 10 contracts for a total position size of $920. My ideal profit is 35%. The commissions to buy & sell 10 contracts will be $45. My cost basis will be $965. Divide $965 by the inverse of 0.35 which is 0.65, and my target position size is $1,484.62. Therefore the bid price will have to reach $1.49 for me to hit this goal.
I will place a limit order to buy 10 contracts of the April $19 Put options, and then simultaneously place a GTC sell order to sell those at the bid price of $1.49 per share per contract.
Their most recent earnings release was January 20th where they beat earnings by $0.01 per share. Their next earnings release will be on April 20th, so there should be no earnings surprises to give us trouble here.
I want something in the money that will also expire next month, so we'll be going with the April $19 Put options. The current bid/ask spread is $0.90/$0.92 and my beginning position size is $1,000 or less.
I will buy 10 contracts for a total position size of $920. My ideal profit is 35%. The commissions to buy & sell 10 contracts will be $45. My cost basis will be $965. Divide $965 by the inverse of 0.35 which is 0.65, and my target position size is $1,484.62. Therefore the bid price will have to reach $1.49 for me to hit this goal.
I will place a limit order to buy 10 contracts of the April $19 Put options, and then simultaneously place a GTC sell order to sell those at the bid price of $1.49 per share per contract.
March 6th, 2012
AMD
AMD has had a breakout to the downside. It's a hammer candle though, I don't believe I fully trust it. The smart thing to do here is to wait for some kind of pullback, see if it tries to re-enter the support level on the chart. If it attempts to re-enter the support level and fails (ie: the support level becomes a resistance level) I will take this as confirmation.
BAC
BAC is currently working through stage 3. It is testing its support level now.
BBY
BBY is still building in an upside triangle formation, attempting to break the ceiling of resistance. I would be leery of this one simply because the market as a whole is poised to turn over and head to the downside, so any trade to the upside here would be going against the general market.
F
F appears to have broken through its support level at $12.20. I would like to see it pullback and retest an entry above this level before thinking of it as a trade confirmation. If it retests an entry, and the support has become a resistance, then I will consider it confirmed.
GE
GE has very clearly broken through its support level. I will consider this confirmation as it has clearly broken its support. My next post will have a practice trade for GE.
AMD has had a breakout to the downside. It's a hammer candle though, I don't believe I fully trust it. The smart thing to do here is to wait for some kind of pullback, see if it tries to re-enter the support level on the chart. If it attempts to re-enter the support level and fails (ie: the support level becomes a resistance level) I will take this as confirmation.
BAC
BAC is currently working through stage 3. It is testing its support level now.
BBY
BBY is still building in an upside triangle formation, attempting to break the ceiling of resistance. I would be leery of this one simply because the market as a whole is poised to turn over and head to the downside, so any trade to the upside here would be going against the general market.
F
F appears to have broken through its support level at $12.20. I would like to see it pullback and retest an entry above this level before thinking of it as a trade confirmation. If it retests an entry, and the support has become a resistance, then I will consider it confirmed.
GE
GE has very clearly broken through its support level. I will consider this confirmation as it has clearly broken its support. My next post will have a practice trade for GE.
YHOO Put Option Play 03-06-2012
So my limit order to buy the April $15 March Puts was successful, and the current bid/ask spread on the options is $0.94/$0.96.
My current profit is $156.00 and my current position value is $1,152.00
Not a bad start...
My current profit is $156.00 and my current position value is $1,152.00
Not a bad start...
Monday, March 5, 2012
YHOO Put Option Play
YHOO has been in Stage 3 since October, so it's been due for a downside breakout. Well we have confirmation of a downside breakout and, seeing as it's March and most stocks are prepping for a drop into March, the timing makes sense too.
Their most recent earnings release was January 24th and they "met" earnings. Their next earnings release is April 19th so there should be no earnings surprises popping up short-term.
I want something in the money that also expires next month. I chose the Apr 21st $15 Puts with a bid/ask of $0.82/$0.83. I do not want my position size to exceed $1,000 so I'll put in a limit order of $0.83 for 12 contracts, for a total position size of $996
My ideal target profit is 35%. My commission on the trade is $7.50 plus $1.25 per contract, so my total commission after buying and selling is $45. This makes my total cost basis $996 + $45 = $1,041. Divide $1,041 by the inverse of 0.35 which is 0.65. This gives us a target of $1,601.54 which means I must sell when the bid price equals $1.34 per share per contract. I will go ahead and enter a GTC sell order at 1.34.
EDIT: To verify this I will enter both the buy and sell order using Td Ameritrade's "Paper Money" feature on their ThinkOrSwim platform. For those of you that don't know, it simulates actual trading by letting you put in buy and sell orders, and then it fills them as though they were real.
Their most recent earnings release was January 24th and they "met" earnings. Their next earnings release is April 19th so there should be no earnings surprises popping up short-term.
I want something in the money that also expires next month. I chose the Apr 21st $15 Puts with a bid/ask of $0.82/$0.83. I do not want my position size to exceed $1,000 so I'll put in a limit order of $0.83 for 12 contracts, for a total position size of $996
My ideal target profit is 35%. My commission on the trade is $7.50 plus $1.25 per contract, so my total commission after buying and selling is $45. This makes my total cost basis $996 + $45 = $1,041. Divide $1,041 by the inverse of 0.35 which is 0.65. This gives us a target of $1,601.54 which means I must sell when the bid price equals $1.34 per share per contract. I will go ahead and enter a GTC sell order at 1.34.
EDIT: To verify this I will enter both the buy and sell order using Td Ameritrade's "Paper Money" feature on their ThinkOrSwim platform. For those of you that don't know, it simulates actual trading by letting you put in buy and sell orders, and then it fills them as though they were real.
March 5th, 2012
OK, so what I'm going to do is every day update with a few pictures and brief analysis of what I see...
Of the stocks I look at, 5 currently have patterns that are of interest to me. One of them, Yahoo (YHOO) is actually just breaking out of Stage 3 into Stage 4, so I will be doing a practice Put option play on them in my next post.
BAC
BAC is currently in Stage 3, and should be expected to break resistance & drop soon.
BBY
BBY currently is in Stage 1, and has an upside triangle forming. The support is around $22.50 and resistance is around $25.93. The difference between the two is $3.43 so we should expect to see BBY rise $3.43 after breaking it's $25.93 resistance and go to $29.36
F
F is currently in a downside triangle. Support is at $12.20, resistance is around $13.02. If support fails, expect F to drop to around $11.40
GE
GE is currently in stage 3. Waiting for it to break resistance and move lower.
It's early March, and mid to late March normally holds a low in the market so it's no surprise we're seeing more stocks set up for a fall. We'll ride the drop with Put options and catch the rebound with Call options.
EDIT: Just noticed this little beauty too. This is the weekly S&P 500 Index chart. Notice the blue line indicating the trend of the S&P... then notice the blue line at the bottom showing the trend of the MACD Histogram. Notice how one's going down & one's going up? Looks like that annual March low is gearing up to hit!
Of the stocks I look at, 5 currently have patterns that are of interest to me. One of them, Yahoo (YHOO) is actually just breaking out of Stage 3 into Stage 4, so I will be doing a practice Put option play on them in my next post.
BAC
BAC is currently in Stage 3, and should be expected to break resistance & drop soon.
BBY
BBY currently is in Stage 1, and has an upside triangle forming. The support is around $22.50 and resistance is around $25.93. The difference between the two is $3.43 so we should expect to see BBY rise $3.43 after breaking it's $25.93 resistance and go to $29.36
F
F is currently in a downside triangle. Support is at $12.20, resistance is around $13.02. If support fails, expect F to drop to around $11.40
GE is currently in stage 3. Waiting for it to break resistance and move lower.
It's early March, and mid to late March normally holds a low in the market so it's no surprise we're seeing more stocks set up for a fall. We'll ride the drop with Put options and catch the rebound with Call options.
EDIT: Just noticed this little beauty too. This is the weekly S&P 500 Index chart. Notice the blue line indicating the trend of the S&P... then notice the blue line at the bottom showing the trend of the MACD Histogram. Notice how one's going down & one's going up? Looks like that annual March low is gearing up to hit!
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