August 3, 2009
Company: Barrick Gold (ABX)
Action: Buy the stock
Shares: 150
Price: 35.81
Stop: 32.41
Target: 43.00
Trade Explanation: Gold has reversed to the upside again, much to our chagrin!. If indeed this 3rd time is the charm, then mining names will rally along with the metal. ABX is long here over last week's high with a stop under last week's low.
Gold:
I can see what RO was talking about. nice bullish pattern set up here.
ABX:
Once again, head and shoulders are there. Fibonacci 23.6% is about to break and if it does I expect a rally to $38.74 - if not higher.
SMA 10 broke above SMA 40 and for this particular stock has been a good indicator.
Based on this, I bought a bullish Vertical as such:
Buy - 10 August 09 36X Calls @ 1.50
Sell - 10 August 09 38X Calls @ .65
Total Net Debit: .85*100*10= $850 + 39.95 = $889.95
Max Loss: 889.95
Max Profit: (38-36)*10*100= $2000
-889.95
=1110.05
Time Horizon: August 14th.
Risk Profile:
Strategy:
If stock advances to more than $38, exercise long call and sell. This will achieve max profit.
If Stock falls to $34 level, Sell long call and hope to take as little a loss as possible. Risk profile says an approximate loss of $750. This is consistent with max 2% loss.
If on Aug 14th no significant price action has occurred, sell long call. Analyze short call position and determine whether to close that or not. If close is needed additional investment may be required.
2 comments:
After doing a calculation of risk vs reward, i do not like this trade.
my total risk is 100% almost and reward is a mere 24%. should have taken that into account and found a better deal. for instace a 35-33 short put vertical (x25) would have meant a max loss once again at $800 (with a stop) and a max profit of 1717.05 with about a 60% chance of max profit. :( should have done that one.
I exited this trade today. ABX fell to 35.60 so i was taking significant losses. Also i realized that the theta was terrible and i should have kept that in mind. thankfully the vega helped a little bit as i closed out the 36 long calls. i am still short the 38 put. granted abx doesnt rally $3 in the next 2 weeks, i will be ok.
Here is the breakdown of my losses:
Bought the vertical at .85/share (so $850).
Sold the long call at .85/share.
holding the short call.
All this nets to zero. i paidclose to $65 in commission, so thinkorswim wins this round.
lessons learned:
keep theta in mind when trading!
Analyze alternate strats before jumping into a trade.
good job managing losses.
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