Well as this stock did gap down with good volume supporting the move. I decided to enter short through a Put ratio backspread. Reason being that this options' strategy simply limits my risk in regards to the large gap between 172.50 / 162.50. All in all, I'm looking for further downside to retest the 150.00 / 152.00 area.
For those wondering what a ratio backspread spread is I'll give you a link with a definition of it. Feel free to also just google put ratio backspread if you want to find a better explanation of it. theoptionsguide.com/put-backspread.aspx
The position:
Bought +2 100 AUG 15 157.5 Puts
Sold/Wrote -1 100 AUG 15 162.5 Puts
The trade:
Exiting at a loss if we get a daily close above the 200 Moving Average.
Exiting at a profit if we reach the 150 / 152 area.
Cheers, happy trading! =)
Comments
TomProTrader
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Very nice.
Daniel.B
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Thanks Tom! =)
moneymaking
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Hey Daniel, nice setup. I just heard yesterday on cnbc, that Warren Buffet lost 700 million on IBM. I'm not sure how reliable this information actually is. Do you anything about this? Maybe its due to this huge gap. What was the cause of this gap?
Daniel.B
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Hey whats up moneymaking! I wasn't watching CNBC yesterday hehe, but if he has lost 700M then its more of he's held IBM at the weekly / monthly highs for quite some time. And since then its greatly under performed so that would be the reason for the loss, Buffet doesn't trade, more of an investor. The gap was due to the earnings report on monday.
ITM.Trading
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I am short too from 162 break of daily/weekly lows
This will be a good one to pyramid into all the way to 150 potentially IMO
Daniel.B
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Thanks for the comment! Nice man, and your right it does look like a good one to pyramid into. =)
ITM.Trading
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Trends your friend!
Daniel.B
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Indeed it is! =D
greenplay
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Is it time to go long on IBM again? Would like to see your charts.
Daniel.B
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Hi thanks for the comment, I actually took most of the short position off and left a very small portion on the table. But in regards to your question, I unfortunately do not give out trading signals. So I cannot tell you whether you should go long / short. A couple months ago I wrote down a couple posts with some good trading books that I believe can benefit your trading knowledge though. Also, another good technical trading book is "The Honest Guide to Candlestick Patterns by Llewelyn James".
But to answer your question I personally see no reason to go long IBM in my own opinion. At the same time price is way to near to support for me to consider shorting it at this level also.