One of the aspects to trading that requires discipline is the situation where the market tells you that you’re wrong in a trade. Since it is my belief that happens frequently in trading, I work hard to ensure that I have flexibility in my trades.
On 7/30 $AEGR had a very nice pop post-earnings but faded quickly. I took this opportunity to short the stock ($94.08 entry) and let the position ride. Once I determined that it was finding a solid floor for price, I made an adjustment to the trade to protect the short stock:
Here is a breakdown:
I went short the August 80 Puts
I went long the August 85/95 Call Spread
This was done for a $.55 debit
This is called a Bear Collar. The gain is capped below at 80.55 & protects on a move up to 94.45.
The stock then proceeded to find Dip Buyers & has spent this week retracing the down move. I then made this adjustment:
When the stock piece is removed from a Collar (Bull or Bear) the Collar then morphs into a Risk Reversal. In this case the Bear Collar morphs into a Bull Risk Reversal. Price is currently hovering near the $95 level so the CS pieces are capped. I am reviewing the August 100 Call to see if I want to widen the CS.