Thanks to my Dude Jonathon (the name is generic enough that there is no harm in mentioning), who I talked to on Friday about my various brokerage accounts, this Monday morning I am active. It is not that he gave me some ideas and I am executing. It is more like his intelligent conversation got me out of a 'trading funk' and I am back in the saddle again, well at least today!
I dusted off bunch of my old screens and stocks started popping up light-left-and center! Oh the buzz! I tell you it is better than a good bourbon! First thing I noticed that lot of my old trading platforms now have a fairly working web version, althrough the desktop version remain more powerful. I quickly entered a bunch of trades just for pure fun. First thing is this ugly chart of ADBE. One of my favorites back in the day, ADBE is certainly nothing new, nothing special anymore. The chart look old and tired too.
However, do you see those earning gaps? ADBE mostly beats earnings handsomely, but based the outlook forecast, sometimes it gaps up, sometimes it gaps down. Typically it fills those gaps though. The most recent is a gap down. The low near 500 is solid and looks oversold. I think if the market helps in October, that 500 low should hold and it bounces.
It is a high priced stock, and at current prices, this is not a stock I am willing to own long term. I will be just playing the bounce if that comes and if it doesn't, so be it! I have decided to do a Oct 18 525/550 Call Vertical Debit Spread. This is a simple bullish option stregegy.
If you look at the profit/loss graph to the right, you will see that the Max Profit will be had if ADBE trades above 550 ($1380) by Oct 18 (25 days from now). The position costs $1,120.00 to open, and that is the maximum loss, if held to expiration and ADBE trades below 525. In other words, I am risking $1120 to get a maximum of $1380. That is about 123% potential gain in 25 days. I will tell you in a month how trade mature.
Compared to that messy chart, MO is a thing of beauty. Oversold on an uptrend has always been my bread-and-butter trading set up. In a bull market, there is nothing safer than this, and this set up has a very high success rate. I have carious screens to look for this. MO, Altria, is a large cap, which is exclusively what I trade, if I trade stocks. They are easier to get in-and-out, has lots of volumes and their options has high volume too.
Basically, the strategy here is to observe that the stock is on a strong uptrend. It pulls back from its high near $55, toward its 50 EMA, which is nicely uptrending. It goes below it, and then makes a reversal bar (doji) at near $50 on high volume on Friday. Today it opens and trades mostly above the reversal bar with a green candle. Stochastic is oversold and turning, which gives the buy signal. As the stock trades above the reversal bar high, a buy is triggered.
If this is a swing trade, people typically place stop about $1 below the low of the reversal bar, about $49. I think I am going to build a position in this so I bought 200 shares and looking to build to this position.
Thats about it! Quite simple and impulsive fun trades to do. I will check in 1 month to see how are they doing.
PS: Many moons ago, I described this "key buy set-up" in a bit more details. It works the same way for short sells too. It is basically a reversal trading strategy.
