I am an opportunistic trader
There are several key areas within my trading process that deal with what I call catalyst trades. Earnings trades fit into this bucket of trades that I want to do. This past week was an important week for Retail earnings and we got a lot of clues about the health of that Industry, especially in teen retailing.
One of the companies that reported was $ARO and the reaction was not kind to those holding the stock: it closed down 20.22% on Friday. I like to trade out-sized moves so this certainly meets that criteria. In addition I did spend some time getting educated on one of the key FA issues impacting this industry: Fast Fashion.
I did keep an eye on the stock throughout the day Friday looking for the usual signs of a real bottoming process – where the Bulls would defend a level. I ultimately settled on this trade idea and put in a bid for a $.60 credit:
- I would be short the October 9 Puts
- I would be long the September 8 Puts
- If/when filled I will have a $.60 credit (could be a gain, could use to buy a Call Spread once a rebound commences – thus making a Risk Reversal CS trade)
- The October 9/11 Call Spread closed at $.42 on Friday as an example
Although this trade did not fill Friday, I will try again on Monday as I prefer this structure right now for a rebound at some point (Relief Rally, short squeeze, etc).
Here is a Daily chart showing the crashing satellite move it took Friday: