Earnings gapped the stock up and it turned right back around quickly. My portfolio is filled almost exclusively with long and neutral positions so it was nice to find a good short position to add but the problem is that I have already allocated all of my funds in other positions. With a small account I take a few extra risk to increase it more rapidly; one of these risks is that I allocate almost 100% of my account balance to active trades. If the markets decide to blow up my account then I am very vulnerable. I try to mitigate this risk by having a somewhat diverse array of long, short and neutral position on at all times but I haven't seen any short position that I really liked so this is a nice find for that reason.
This is just a 1 dollar gap so I wouldn't gain much from my typical deep in the money debit spread unless I thought it was going to fall much lower than my bottom trendline. So the way that I am going to set this trade up is to set up a in the money credit spread. If if it falls through the bottom trend line I make make profit, if it falls between the two lines I make money as long as its above my break even point, but the risk here is that if it doesn't drop in price enough to fall in the zone then all is lost; I'm good with that since I have defined my risk from the beginning of the trade with, in my opinion, is a kin to setting a stop loss in trades like this where the loss isn't much greater then the max profit.
This is just a 1 dollar gap so I wouldn't gain much from my typical deep in the money debit spread unless I thought it was going to fall much lower than my bottom trendline. So the way that I am going to set this trade up is to set up a in the money credit spread. If if it falls through the bottom trend line I make make profit, if it falls between the two lines I make money as long as its above my break even point, but the risk here is that if it doesn't drop in price enough to fall in the zone then all is lost; I'm good with that since I have defined my risk from the beginning of the trade with, in my opinion, is a kin to setting a stop loss in trades like this where the loss isn't much greater then the max profit.