RSI as a trigger

part of the Simple Approach series

I reviewed numerous charts this weekend that have a similar characteristic with $PCLN: intensified buying or selling when RSI hits 30 or 70 respectively. Here is a daily chart on priceline.com to illustrate:

PCLN_RSI

If you are of the camp that history will rhyme for price then $PCLN is at a Buy signal today. If you are not of that camp, what keeps you from believing that this is a high probability trade?

– DM 9:55 AM CST

Looting a Call Fly

For those that are not familiar with a Call Fly, here is how it is structured:

  • Long a Call. This is the bottom of the Call Fly
  • Short 2 Calls at a strike (or more above). This is middle of the Call Fly
  • Long a Call above the short Calls. This is the top of the Call Fly

This trade structure will be for a debit (I often sell Puts below to pay for it).

So what does it mean to loot a Call Fly? This is really a made-up term from me but this is what I am referring to:

You have a Call Fly and the stock moves up enough to where the bottom of Call Fly is ITM (in the money). However, it doesn’t have enough momentum to get near the middle of the Call Fly. What I often do now is StC (Sell to Close) the long Calls (bottom of the Call Fly) thus leaving the rest of the Call Fly (middle, top). You want the remaining pieces to all expire worthless. By doing this though I increase the Risk (I would be short 2x Calls in this situation) so I always set a Buy Stop near the middle Call(s) strike (would act as a hedge).

Here is a recent trade where I did just that:

Lennar $LEN

I initially opened a long July 50/52.5/55 Call Fly with short $47 Puts on 6/23 for Earnings. The stock did move up near the $52 level but stalled and pulled back. I StC the $50 Calls thus leaving the rest of the trade. I then set a Buy Stop at $51.25 on 6/25 (which has triggered).

 

– DM 9:40 AM CST

 

My better half

I don’t talk about it much but I manage an account for my wife. Below is a list of her positions:

Stock:

$AKAM cost basis: 63.7909

$AMED cost basis: 16.8999

$INTU cost basis: 89.359

$NKE cost basis: 74.2896

$OCR cost basis: 71.241

$TJX cost basis: 61.469

Options only:

$SBUX owns a July/July 02w $50 Call Calendar

 

Note: There are options involved with $AKAM $AMED $OCR

– DM 10:20 AM CST

 

 

Earnings preview: Sonic Corp

SONC_IV

One of the reasons I prefer selling a July Strangle for earnings is the usual elevated IV on the earnings ramp. Here is another reason:

SONC

Price is approaching this Breakout Box as it runs up into Earnings.

Who is left to buy?

I like selling the July 35/30 Strangle and collecting $1

– DM 9:40 AM CST

 

June 26w (weekly) Options expiration

I have a larger # of positions than normal that contain weekly options.  Here is the list with some info on my plan that will need tending to by Friday:

TLT  I own the 116/118/115 Risk Reversal Call Spread. I will likely take the usual step of taking the ETF at $116 and selling Call premium further to BtC the short $118 Calls. The short Puts go poof. Options Net is: $.62

XLF  I am short the $25 Calls (I am long the July $25 Calls as the other part of a Call Calendar). I will keep selling weekly premium. Options Net: -$.01

SWKS  I am long at $101 and short the $105 Calls. I will adjust the short Calls to a future expiration. Options Net: -$.23

AXP  I am long at $78 and short the $78.5 Calls (covered calls). I will adjust the short Calls to a future expiration. Options Net: $2.71

BAX  I own the 65/68/70 Call Fly and short the $63 Puts. I will take the stock at $65 and sell Calls further out to BtC the $68 Calls. The short Puts go poof. Options Net: $.18

CAT  I am long at $85 and short the $89 Calls (covered calls). I will adjust the short Calls. Options Net: $1.22

ORCL  I own the 42/41 Risk Reversal. Undecided on which path to take. Options Net: $.19

YUM  I am long at $91.26 and short the $92 Calls (covered calls). I will adjust the short Calls to a future expiration. Options Net: $3.62

Clients:

AAPL
COST
CSCO
GMCR
ITB
KSU
PG
SNDK
TRIP
WFC
XLE
XLV
XME

Note: Not every client has all of the positions listed above in their managed account. This is a complete list of positions – across all managed accounts – that I will need to tend to that have June 26 weekly options as part of the trade. 

 

– DM 10:20 AM CST

 

 

 

 

The Down Channel

During stock research this morning I noticed this well-defined Down Channel that has formed in $ITW:

ITW_D

Now that price has begun to arm wrestle the 200 SMA I will be watching for a move down to the $90.50 level. An ideal trade here would be a Put Ratio in my opinion.

– DM 10:05 AM CST

 

Following footprints starring Manulife Financial

On May 28th I noticed a very unusual trade in the September option chain involving the $18 Calls. Due to the enormous “footprint” left by a trader I elected to tag along with my own trade:

Bullish Risk Reversal:  long the September $18 Calls and short the $17 Puts

This trade was done for a -$.80 debit and take margin

The stock is trading near the $19.5 level today and I thought I would comment on a couple of key points for the trade:

1) The strategy is a simple one: keep an eye on large Option trades and determine the probability of success based on defined criteria

2) Make your own trade if you are going to tag along. Don’t just follow blindly

3) As is the case with every single trade, know your Risk and manage it. In my case I have be sure I am ready to hedge with stock if price gets anywhere near my short Put strike

 

– DM 9:10 AM CST