Since about early September GME has been range bound between 29 and 24. The entire market was down for the month of September, yet this traded range bound in this area. But towards the end of September, it tightened it's range bound between 27 and 24 and trending lower at a slow pace. With the big green day we had in the markets Thursday after CPI and another green day on Friday, this really didn't move as much. If the range is getting tighter and trending lower, we could be setting up to head lower in the 21-24 range. Which is why I had the idea of a Broken Wing Put Butterfly which can work great in these range bound set ups.
In order for me to put this trade on, I need to see this trade below were today's candle ends up. Because as of now, it's looking like a reversal candle at the area of resistance. So I'll have to check this tomorrow before executing my trade. As far as stops, I'll be position sizing with max loss. If the market decides to head higher the rest of this month and GME decides to follow the general market, this could make it's way back to another resistance point of 29ish. If by the end of this week it gets to 29, I'll want to see a reversal candle at 29, before I decide to get back in another trade.
Trade Set-Up:
No trend. It's making relatively equal highs/lows. The 20-day & 50-day SMA's are flattening out as well. I've established that resistances for this particular trade idea is 27 and support at 24. This small rally has brought the stock back up to resistance level and a reversal candle is currently forming.
T.E.S.T. Timeframe: 3 weeks. I'll have a December 2nd expiration date. Entry: If this trades below todays possible reversal candle, my entry will be right around 26. Stop: I'll be positioned for max loss. Target: My target is 24.
Profit Score: Potential- 2 ATR- 2.18 Score- 0.92
Stock Outlook: 0 to -1
Trade Breakdown:
Chart Set-up is Range-Bound and consolidating.
Entry: I'm going to sell the December 2nd 24 strike and buy the December 28 and 21 strike. There are no earnings scheduled until December 14th so stable volume is anticipated.
Position Sizing: This should be a Net Debit of about 3.10ish by tomorrow if it does fall to 26 tomorrow. I'll be setting up for max loss and only risking 2% of my portfolio.
Trade Management: A week before this expires expires I will analyze the trade to determine if I should close out the position before expiring. If this falls below 24 before December 2nd and looks like it wants to run back up to 24, I might want to hold this to expiration to close out near the apex of the trade.
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This looks like it wants to make it's way to 29. I'll wait to see if it gets and determine a new trade strat.
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So this still hasn't trade at the 26 or lower area in order for me to trigger this trade, so gotta sit on my hands more. At this point, I'd like to see this run to 29 before I get short. I'll give it a couple more days.
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Ok, it looks like its going to hang out here. I put a bid in for this combo risking a little under 2% of my portfolio. And instead of December 2nd expiration, I pushed it out to December 9th instead right before earnings.
Trade active
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Trade executed.
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Trade is looking good so far. Still need about another week. If we get to 24 by the 7th of December, I'll close it out and take profits.
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As of now, this is going against me. If this continues to head higher to 29, I'll let this combo expire worthless.
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24 target is approaching. I'm watching the hour charts now so i can determine an exit. I still want to close this out Thursday. Maybe Friday morning if it decides to really hang out at 24. Let's see what happens.
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Ok I'm gonna sell the entire combo. Need to get out of this before Thursday because of earnings.
how does the 2nd target come before the 1st target?
motaman1985
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@GentIeJae, 2nd target is just my mental note. Since we didn't get the confirmation candle today ( confirmation candle needed to trade below yesterday's candle in order for me to trigger this trade idea ) I've already made a mental note that this could run to 29. So now, I just need to be patient until it reaches 29. My "2nd Target" is like saying "Plan B". So if this gets to 29, I'm going to want to pay attention to the price action and volume in this area to see if it makes sense to get short or not.