Well the reasoning for the position is in the previous post on IWM when I added it to my watch-list which I have provided a link to in this post. Overall I outlined why US Index ETF's can be so profitable to trade in a bull market, the reason being the basic price action which forms on a D1 chart. Trading simply off of major moving averages (50,65,200), and basic resistance turned support (buying at support & taking profit at resistance; I find no need to short a stock index in a bull market)
In today's particular price action price pulled back this years support once again, also around the 200 Moving Average. Price formed a bullish pinbar/hammer (whichever it's called, correct me if I'm wrong), anyhow we also had volume breaking out (bullish) above the trading volume consolidation we found ourselves in for the month of July.
The Position:
Long +4 AUG15 125.5 STK Calls
Long +5 AUG15 127 STK Calls
Sold/Wrote -2 AUG15 123.5 STK Calls
The Trade:
Target is at the second blue line around the 128.00 area.
If you want a management point / primary target can be made at the 1st blue line around the 126.00 area.
There is no stop loss area on the trade due to the structuring of the options. That being that I suffer a smaller loss the more I let the trade go against me vs. exiting at a loss on a break below 120. In other words, if the trade does go against me I lose less money the further price falls below the 118.00 price level. The maximum loss is between the 118.00/119.00 price levels.
Max loss if price falls below 118.00 = ($33.00)
Pofit at the 128.00 area bounces around +$1,800 - +$2,000
If I take profit at the 126.00 area than I look to make around +$610.00
Disclaimer: I entered this trade around an hour before the New York close, so the trade statistics are based on the options prices that were present at the time of the trade. So you will have to take that into consideration that your risk / profit / and possible structuring of the trade might have to be slightly different to fit your own trade parameters. This is not a trade signal, just my personal idea and trade. If your new to options trading do make sure to do your own due diligence in learning how to use stock derivatives or you can find yourself in a world of hurt if used inappropriately. My advice is to test out option trading strategies / structuring on a demo account for a couple months before you go live.
A good book on options trading is "The Ultimate Guide to the World of Options Trading" by Manny Backus, other than that you can find plenty of books on options trading. And another disclaimer, in no ways do I profit or benefit from purchase of this book.
Also, if you want to see visual lessons on options there is a wonderful channel with playlists already sorted out for beginner / experienced traders. I suggest starting out with the "options trading 101" playlist. The youtube channel is called "TastyTrade"
Cheers, happy trading =)
Comments
sephirothfx
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Looks like an awesome plan. I bought a OOTM long call on the DIA (Dow 30 ETF) a couple of days ago on the same observation.
Daniel.B
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Cool so far the trade isn't working out on this one, currently flat last time I checked. I usually always buy/write OOTM calls/puts when trading options, hehe. Anyhow thanks for the comment and good luck on the trade man!
P_Parker
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Hey, I dont Trade Stocks but that looks very good. Support and Resistance - what you need more...? ;-)
Good Luck Man!
Daniel.B
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Yea I weighted most of my portfolio into stocks now. haha Yea support and resistance nothing more than that lol =D
Justiceisfalse
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Was looking at the same areas. Never pulled the trigger on my trade. Would have gone for the 123 calls outright.
Daniel.B
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There's always tomorrow =D Thanks for the chart bro =)
Daniel.B
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This chart is a perfect example of support being broken and acting as new resistance! BTW this was a losing trade when I took it.