PLCM is forming a bull flag after released earnings. jumped like 15% after earnings release so obviously Consolidation is coming. I have drawn a few trend lines and fib retracements on the 6m graph and some important resistance and support levels on the 5d:
Based on this i sold a bulling vertical on a down day hoping to capture the increased vega premium.
here is my trade:
Sold 7 Aug 09 PLCM 25X put at 1.80
bought 7 Aug 09 PLCM 22.5X put at .40
Net credit = 1.40/option
Total net credit = $980 - 39.65= 940.35
Max profit = 940.35 (potentially slightly higher. if the stock makes a break to the up, i could sell the long put).
Max Loss = 770 (potentially lower if i buy back the short put and if it keeps falling i could make a substantial profit.)
Time Horizon: August 22nd
Risk Profile:
Strategy:
Let it ride until aug 22nd. hopefully the stock breaks up from the bull flag. aroudn august 14th, i may want to sell the long call if the price is up.
if the stock falls to 22.5 level, buy back the sold put and hope for an upside down teapot. make sure the premium for buying back is worth the expected profit. it should be because the vega should have deteriorated the 25 puts value.
lessons learned applied: i analyzed straddles, long call verts and short put verts with various strikes until finiding this.
theta is in my favor this time and hopefully kicks ass.
3 comments:
on 8/11, unfortunately, the stock price fell to 22.68, putting me signifincantly ITM for the short put. Thus I decided to close out that position for a loss of 455+20.45 = 475.45.
of course this position is not over yet. i still have the long PLCM call at 22.5 (btw, i am looking and PLCM is rallying....) over the week, i hope the stock price falls, raising volatility. perhaps i may be able to cut down that $400 loss.
I realize that once again i did not give the stock enough time to move - to break out of the flag. the 50 dma is approaching the price and i believe this may act as a support. i should have not traded this high risk strategy.
because i did not follow my plan, i lost money on this trade. the analysis said that the stock will break to the negative only when it hits 22.5. that is what happened, the stock fell a little but did not break through, subsequently rebounding to 23.39 right now.
the stock essentially bounced off the lower trendline, as is normal. d'oh!
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