Using RSI as a trade signal starring Workday

part of the Simple Approach series

 

Sometimes a chart provides a very clean look at what happens at key moments. For an example, let’s take a look at how price reacts when RSI gets near the 70 level (over-bought) on $WDAY:

WDAY_D

Now you have to consider the following:

1) Double Top?
2) Cup is built so does it build a handle now?
3) Just a normal Inside Day today
4) 50/200 SMA congestion

Looking Both Ways in Panera Bread

Sometimes I don’t have a clear bias in a trade but I expect a nice move one way or the other and I want to participate. Yes, I want my cake – and eat it too.

One way I do this is to design what I call a LBW (Look Both Ways) trade. Here is how it looks on a chart:

PNRA_B

Current November Option prices:

170/175/180 Split Call Ratio: 5.30/3.30/1.78
170/165/160 Split Put Ratio: 5.80/3.65/2.19

An Earnings trade idea in Buffalo Wild Wings

I will be considering the following trade for Earnings 10/27/2014 AMC in $BWLD:

BWLD_Earnings_trade

The trade idea:

  • Long November 135/125/120 1×2 Split Put Ratio with Short 150 Calls
  • Another way to look at the trade is noted in the chart above (Long Put Spread, Short Strangle)
  • This trade will be for credit
  • This trade takes margin (until the Short Strangle Option pieces are closed)

If price moves near the $150 or $120 levels you would need to consider hedging with stock in after hours.

 

Earnings Trade Design starring VMware and Polaris Industries

As we head into the heart of Earnings season, my focus on this segment of my trading increases – it is where I find some of the best opportunities for new trades. I use Options as a key component to most trades for a variety of reasons: lower capital requirements & the flexibility to participate in the post-Earnings price reaction.

It is an important step for each trade to do a thorough review – and sometimes I like to share that info along the way (from trades that are still in progress). I have 2 new trades that I did yesterday and I thought I would review where things stand now that the Earnings event is over.

VMware ($VMW):

  • I am Long the October 24 weekly 91/95/82 Risk Reversal Call Spread
  • This means I am long the 91/95 Call Spread and short the $82 Puts
  • This trades takes margin this week (or until the short naked Puts are closed)
  • The trade was done for a .05 debit

VMW_G

The above chart shows the close from yesterday. The current price in pre-market trading is $84 so I will need to monitor the short Put strike. It does not appear that I can get any value out of the Call Spread.

Polaris Industries ($PII):

  • I am long stock at 146.84
  • I have a November 160/145/135 Collar Put Ratio
  • This means I am short the $160 Calls (covered by stock) and long the 145/135 Put Ratio (1×2)
  • This trade does take margin due to the Put Ratio (until at least 1x of the short $135 Puts are closed)
  • This trade was done for a .55 credit

PII_B

The above chart shows the close from yesterday. The current price in pre-market trading is $149 but there has been very little volume (normal for this stock). With this trade design I can participate on any move up to $160 and I am protected down to $135 (+/- the credit received).

Market Vectors Oil Services

I have been looking for a bounce/reversal trade in this industry/sector but it continues to show weakness that can not be ignored. One perspective on this can be viewed on the $OIH Weekly chart:

OIH_Weekly

Several points to make:

1) RSI has drifted down to near 30 (oversold level)
2) Rising Volume as price plunged this Summer into the Fall
3) MACD is falling, weak
4) The 200 SMA is just below – it did manage to hold it on the last 2 tests of it

When looking at the Option chains, it is worth noting that the Top OI (open interest) by far in October is on the Put side ($52 Puts lead the way with 17,713 contracts).