Balance: $1000.50(The .50c is from the verification deposits that were made by my bank)
I've been searching all weekend for a good stock/option pick for my first trade with this portfolio. After going through hundreds of charts I've decided that I am going to trade the option for APC(Current Stock Price - 40.69). I have already enter an order for APCPG, the April 35 Put, Current price - .81::Bid - .80::Ask - .85:: Gamma - .035:: Delta - .189.
Rationale:APC is one of the few stocks that I have seen in these times that actually abides by the candlestick indicators. The huge bearish engulfing pattern on the candle sticks would indicate that the stock price is going down. Be careful when following indicators because news trumps all technical indicators. If the company were to come out with some great news then the price would probably rise and it would hurt our position.
1. APC has been channeling around its 50 day SMA since November.
2. Bearish Engulfing pattern on the Candlesticks
3. %K stochastic has crossed below the %D
4. Commodity Channel Index is signaling to sell.
5. we will disregard the MACD in this case because it is known to be a lagging indicator. By 9:30am Monday morning I suspect it will be indicating to sell as well.
Exit Strategy: According the the Fibonacci retracement this stock should retrace back to 34.70(50%). If it breaks through 34.70 then it will retrace down to 32.54(61.8%). I am going to play it safe on this one and set a sell order when the stock reaches 35.00.
Basically the order flow is like this:
1. Buy to Open...11 contracts...APCPG limit .85
This will cost me $935 + 21.24 in commission/fees(My E*trade commission is 9.99 + 75c per options contract). Total Transaction: $956.24. This leaves $44.26 in cash.
2. After the order is filled I will enter the contingent order as follows:
a. If the Bid price for APC is less than or equal to 35.00 then sell to close APCPG @ Market.
The only reason that I am selling the option at market is because I'm not sure what the exact price of the option will be when the stock reaches 35. The equation for pricing an option factors in Time and Volatility which are hard to predict. Based on the past movement of this stock I believe that I will be holding this option until about April 13th. Without factoring in time and volatility this option should be trading around 2.59 on the 13th of April, assuming that the underlying stock is at 35. So I am predicting that our account balance should be around $3000 by the middle of April.
I will update the blog again with the actual price that the stock was purchased at 9:30am when the market opens.
Disclaimer: I am not a professional trader nor am I qualified to give financial advice. The stock picks that I post to this blog are for educational purposes and/or my benefit. Do not jump into the same trades as I do without doing your own Due Diligence.
You are going to have to change your Retracement numbers since the stock has moved passed the high you used on Sunday. H-43.84 L-31.15
ReplyDelete38%-38.99 50%-37.5 62%-36
-Green
I appreciate that Green...I'll post the new numbers. I'm using H-43.89 L-30.88. I think you used the price at open. Not much of a difference though.
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