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Solely focused on volatility trading (ETF, futures, options). There's no greater edge in the market in my opinion than deep inside volatlity trading. Purchased my first stock at 12 years old, later majored in Finance. Worked at Microsoft as Program Manager, Tester and Developer where I... More
  • Extreme Option Trades - Playing Probabilities, First Trades (POWR, SNTS, PCYG) 0 comments
    Sep 16, 2013 7:45 PM

    I've been doing a lot of refining, reworking and lots of learning and testing to arrive at a standardized style of options trading that appears to work well.

    I term it extreme option trades because they fall into either bounces against the outer bounds of various bollinger bands, or are breakouts to new highs on strong volume and ideally from low volatility consolidation zones.

    Having read a lot of options books, websites, etc. I thought I would prefer to do an ongoing blog that was a lot less on theory and a lot more on real-money trades as they happen.

    Thus, I'll skip all the option greeks, etc. b/c you can learn that anywhere. More important is focusing on consistent implementation of my trading style and the benefit for me of this blog is I have to 'prove' why I took each trade. The possible benefit for you is seeing real money trades in action, win or lose.

    Three trades entered today - 9/16/2013:

    1 - POWR - this is a small stock with a large revenue backlog. Reason for the trade was the nice touch/bounce off the lower bollinger bands and Keltner channel. The main reason I can see for the dip off the highs earlier was that they announced a secondary offering which of course dilutes the current stock. This trade attempts to capture that short term weakness with a low risk entry in an otherwise well growing company.

    POWR entry

    I purchased Dec 15 calls, in at 1.60 each. I would have preferred further out calls but the volume wasn't there so may have to add to this with outright stock.

    Note the hammer candles prior to the pop indicating the downmove is being met with increased buying into the selling.

    I'll go into more details regarding the technical indicators in future posts.

    2 - SNTS - a fast growing drug co with apparently excellent management. Weakness appears to have been from a broker downgrade which many people question the logic behind, and possibly profit taking since the stock is way up overall.

    Same exact technical picture - bounce off the lower bollinger bands and K band with all of them aligning nicely, and two hammer candles in there earlier as well.

    (click to enlarge)SNTS entry

    Purchased Feb 22 calls at 3.30.

    3 - PCYG - A different kind of extreme trade. In this case, breakout to new high on strong volume. Plus, bonus of a nice cup shaped dip before hitting the new high (ala classic IBD pattern).

    One item to note, I missed the earlier extreme trade of the bounce off the bands but you can see the result. I didn't have this trading style built back then.

    The options on this stock had gross spreads between the bid and ask so I went long the stock directly instead.

    PCYG entry

    Purchased at 8.30 and purchased a few more at close of this same day (9/16). Their earnings are next week and I suspect that is part of what is driving this move.

    I'll attempt to continue to post as new trades develop and go into more details on the underlying technical indicators used in this system of trading. I use several other indicators not shown in the images above and we can go over those in the future.

    Disclosure: I am long POWR.

    Additional disclosure: Assume I am in a position (long/short) in every stock mentioned. I don't write about things unless I have real money involved by default as I am a trader first and foremost.

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