Not exactly what I had in mind

The ECA trade moved too fast for me. I saw the stock when it was at $54 today but unfortunately had to treat patients today and did not get in on the bounce. The trade would have been great It was possible to get in at .30 on an out of the money August $50 Put and then sell it for .70 at the most. So getting in at around .40 and selling at .50 would have made you a quick 25% and it would have been very possible to do that just in a few hours today. But like I said too fast for those of us that can not watch the markets all day.

Another reason I like credit spreads.

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When not to trade…

A trade that I did not do is the ESRX 80/85 Bear Call for August.

I know I am telling you about a trade that I did not place I know it seems ridiculous and you are asking why is that important, but I’ll tell you why.

Many times it is more important to limit your losing trades than to make profitable ones in regards to longevity of your trading career. Lets take a look at the trade I did not place.

For the last two months I have placed an 80/85 BEAR Call Spread on ESRX. Selling the 80 calls and buying the 85 calls. Heres the chart…

Charts by Big Charts

Here you can see in April the stock gapped down and then continued to drop below the 200dma. In May I placed a June trade and then after the stock dropped enough I bought back the sold call and placed the July trade. July Expired in the profit last Friday so why did I not place the next trade - EARNINGS.

Here is the news on the earnings report from MarketWatch….click here

So what we have is a company that beat expectations and then increased their future outlook. So unless the company representatives said something “stupid” in their conference call I will expect this stock to fill the gap it made in April, breaking through the 200dma resistance. Another look at the stock can come if the stock does not break through the resistance line. I saved capital by not playing this trade, I will be very interested in this stock and what it does tomorrow.

OK lets try a different type of play. This one is setting up nicely.
A September Put play on ECA. Heres the chart…..

OK you may be saying what the hell am I thinking placing a put trade on this stock, especially after the earnings report from yesterday and the gains from today. The technicals are all showing a rise in the near future and it is a natural gas producer and storer and fuel prices are still high, what am I thinking?

Here is what I am thinking…
This will be a quick turn around speculative trade a day or two trade for a quick profit. What I see are large gains the last two days and a strong resistance of $54 coming tomorrow. Wait for the stock to reach that resistance and bounce, should happen tomorrow. Buy the Put and then immediately place a sell order for a 20% gain. Take your quick gain and go.

My personal rules for trading straight option plays are one month out and in the money options. If you want some more risk, since this is a speculative trade, try for the current month and an out of the money trade. We are only going to be in this trade for a day or two, three at the most, time value will not hurt us much. The key will be the timing, we have to wait for the bounce. This stock may sit at resistance for a couple of days since the technicals are showing uptrend so WAIT for the bounce back.

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Neutral Channels in the stock market

The DOW and the S&P 500 after two straight days of gains are now displaying a neutral channel pattern.

The DOW is stuck between 10700 and 11200 for now. Not too bad considering the time of year and the world news in general.

The S&P 500 is between 1220 and 1280.

The Nasdaq on the other hand is still in a downward Bear Channel and is currently sitting at the resistance line to the channel, the next resistance line would be the 30 dma.

So what to do with trading…well Conservative Credit Spreads are an excellent strategy during times of neutrality because you make your profit off of the time value and not necessarily direction in the stock. Oh it is always better and less of a risk when the markets have a distinct direction which is why for the faint of heart it is always better to stay out if the market does not know what it wants to do.

Another play would be Time Diagonal Spreads - A simple strategy of buying a call or put at one strike price from one month and selling a call or put of a different strike price in a different month.

Here is a defintion and example from Writing Puts.com

There are many other ways to trade a time diagonal spread. One of my favorites is to buy a call below a support line and sell a call above a resistance line and time it so that the most profit is made especially if the stock is channeling. For example buy a long term call when the stock has just bounced off support and then sell the current months call when it is somewhere near resistance, therby making the most profit no matter what the stock does, unless of course you get bitten by news and the stock drops below your support line such was the case of my THOR trade earlier this year.

I have noticed that i have not placed a new trade out there so I am going to have to produce one this week. I do also plan to finish the way to trade conservative credit spreads this week or the beginning of next and have the ebook finished in a couple of weeks so it is all organized in a step by step fashion. Stay tuned.

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Stock Market Pro

Stock Market Pro

Just a little note to pass on about a forum that has just been revamped so it is like starting all over again. Get in on the ground level. I have been on two previous forums with these guys (and ladies- “Fireopal”) and I would consider them my internet friends, good people to converse with - interesting off topic issues discussed as well.

Strong interest for Penny Stocks on this forum (yeah a bunch of gamblers on there I know - LOL) but also good insight on Big Board Stocks and of course there is the Option Traders group - help cheer on Kevin who at this moment is starting over with just about $300 in his trading account.

Yes I am doing a membership push to get more activity there so truck on over to Stock Market Pro and be one of the students or even one of the gurus!

Thanks for putting up with this blatent advertisement now back to our regularly scheduled program. By the way I received no compensation for this advertisement, I truley would like to see this new forum grow.

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