I am an opportunistic trader that utilizes a variety of strategies to participate in a stock price move. Sometimes I just use stock, long or short, sometimes I use just Options, and sometimes I use a combination of the two. Sometimes the opportunity requires patience to set up – even though I can see it coiling on a chart – as the setup has to be anticipated.

In reviewing several charts this morning, I noticed several stocks that had price banging its head (from below) on a down-trending (DT) line above. I like this setup because at some point it will break above this DT line and I want to play that move.

One such stock is $IO:

One thing to note here is this: once price does break above the DT line, there will be some formidable resistance next at the 50 & 200 SMA (simple moving average) at 6.50 & 6.65. Volume is trying to increase here so be ready for the imminent break.

Anticipate, but be patient.

One of the stocks that I have stalking this week is $TXRH and it looks ready for a new breakout. What I have been monitoring is the elevated RSI (wanted to see it work off some) and I also wanted to see how the MACD would resolve (has become embedded here, does it bounce or cross down).

A look at the Daily chart:

There are several ways to start a trade here. One of the easier ways to play is to just go long stock and protect with a Put. Here is how it works:

• You go long the stock
• You buy a near-the-money Put to protect against any downside move
• One reason this may be tough here is that you only have the 22.50 & 25 strikes to work with.

Other trade ideas:

Risk Reversal

• A June 22.5/25 Risk Reversal
• Long the June 25 Call ($.30)
• Short the June 22.5 Put ($.25)
• This trade can be done for a $.05 debit at the moment
• Note: the June 20 Call has very large Open Interest so this makes me more bullish

Long Call

• Buy the June 25 Call for a $.30 debit

Had to do that.

Since you are here anyway, I really want to layout the Covered Call trade with $DDD as the example. I am currently long and have been selling upside Calls against the stock as it moved up. When this is done at the same time, it is referred to as a buy-write. When you own stock and then sell Calls against later, it is referred to as a Covered Call.

Yesterday I made the most recent adjustment to my trade by buying back the short May 47 Calls (had been sold for .85) and then selling the May 50 Calls. These were going at 2.27 at the time so the premium was significant for Calls that are expiring Friday. This adjustment was at a debit of $2.22 when filled.

I had made the decision at the time that the key $50 price level would be a good battle area for May expiration so that is why I chose that strike. Currently price on the stock is hovering around the 48.75 area and the May 50 Calls are at a .80/.85 bid/ask. The significant move down in the value of the Calls has helped to offset the pullback in price – exactly what the premium sale is supposed to do.

Just one of several ways to protect a long position.

Note: The “net” on the Option pieces for this trade up to this point is now a debit of $1.37 and my stock entry was at 40.18 (I noted my entry here on my Blog this past weekend).