This post was originally written on December 11, 2012 at http://www.optiontiger.com/priceline-bear-call-trade-update/
We put the Priceline Bear Call Trade (NASDAQ:PCLN) on Dec 3. At that time, PCLN had stuck its head above the upper Bollinger Band. Just because a stock goes above or below the 2-Standard Deviation bands does not automatically trigger a trade. However, we noted that Priceline had already made an impressive move up of 25%. When these two factors combined, it provided a strong entry signal. This was going to be a "mean reversion" play.
As of today on Dec 11th, we can see Priceline has dropped by about $50. Out of a maximum profit of $2700, we have a clear profit of $2050. Normally this would be enough reason to close the trade out. However, upon close examination (see chart below), the following points can be observed -
· The 725 Short Call got us a premium of $8
· The 740 Long Call cost us $5.3
· Today, the 725 Call is going for 1.55 (a profit of almost $6.5)
· The Long Call is going for 0.90 cents
· The trade has a profit of $2050
Instead of closing the trade, I'm going to take the suggestion of a fellow Linkedin group member, and close the 725 short call for a profit of $6.5. Now I paid only 5.3 for my Long Call, so I have already paid for this Long call. And I still have 38 days in case PCLN turns around and makes a move to the upside, everything that the Long Call gains will be bonus profits. Great adjustment and great trade entry !!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.