Trading using RSI starring Google

 

part of the Simple Approach series

GOOGL_B

If you were using RSI to Buy in mid-Oct and mid-Dec then you’ve done well. Now that RSI is probing top side at 70 I would imagine that RSI Sellers show up now. Of course, it could just drift sideways to burn off some of the RSI. Or it could just keep going.

I have an existing position that I have on my list to tend to this week (has weekly Options as part of the trade). I am considering taking stock at $525 but will consider other choices by Friday.

 

- DM Noon CST

 

Trading Activity

Cardinal Health $CAH  I have sold the long stock for +$2.61 and used some of the proceeds to BtO the Apr/Mar $90 Call Calendar. Options Net is: -$.85 (Fab 5)

AutoZone $AZO  I have StC the March $650 Calls for $24.40 avg. I set a Buy Stop at $666 (would be a hedge). Options Net is now: $24.32 (Earnings)

MercadoLibre $MELI  I have BtO the Mar 140/125 Strangle for a 2.25 debit (frees up some margin, defines Risk at $5 either way max). Options Net shrinks a bit to: $10.40 (Earnings)

 

- DM 10:00 AM CST

 

Using an Option Collar for protection

I have an existing Long Stock position in Stratasys that I have left in place for Earnings (I rarely close a position right before an Earnings event). By utilizing the power of Options I have a Calendar Option Collar in place to protect the long stock in $SSYS:

  • Long stock at $55 (since 2/13)
  • Short the March $65 Calls
  • Long the March 13 weekly $65 Puts
  • I have an Options Net of $1.71 right now

Let me further explain a Calendar Option Collar: this means that the Option pieces chosen exist in different expiration’s. In this case I am short Calls in the March monthly expiry and long Puts in the March 13 weekly expiry.

Now a look at a few scenarios to see how the Collar can protect:

1) Price moves up and is near $68 at expiration on March 13th. The stock will be called away due to the Short Calls. The Puts go “poof”. The gain would be $11.71 (Call strike – minus entry + Options Net)

2) Price moves down and is near $60 at expiration on March 13th. The Long Puts are ITM so would be assigned (thus closing the Long Stock piece of the trade). The Short March $65 Calls would remain. The booked stock gain would be $10

3) Price is at $65 on March 13th. You will need to determine what adjustment you will want to do then (if any) or close the trade

 

- DM 9:15 AM CST

 

Earnings Trades update

Netflix $NFLX  I remain Long stock at $345. I did adjust a few of the Options pieces this week. Now have a Jan16/Apr 02w 450/470/440/420 Diagonal Collar Split Put Ratio. A mouthful I know. Options Net is: $6.77 and booked stock gains remain at: $11

Google $GOOGL  I am Long the March 06w/Sep 525/550 Diagonal Call Calendar. Options Net is: -$6.63 and booked stock gains remain at: $58.38

Centene $CNC  I am Long stock at $56 (post-Split) with Short March $60 Calls. Options Net is: $2.64 and booked stock gains remain at $6.00

Twitter $TWTR  I am Long stock 41.99 with Short June $45 Calls. Options Net is: $3.15

Buffalo Wild Wings $BWLD  I am Long the March 190/200/210 Call Fly and Short the June $195 Calls. Options Net is: $11.82

Boston Beer $SAM  See Blog post earlier this week for more details. Currently Long the March 260/270/280/290 Split Call Fly. Options Net: $5.172 and booked stock gains remain at $44.70

MercadoLibre $MELI  I am Short the March 135/130 Strangle. See Blog post. I have Buy/Sell Short Stops set at 136/131 respectively (would be a hedge). Options Net is: $12.65

Air Methods $AIRM  I am Long the March 45/50/55 1×2 Split Call Ratio with Long stock at $52 (hedge). Options Net is: -$.10 and booked stock gains: $3.43

 

- DM 11:45 AM CST

How an IV “crush” works starring MercadoLibre

For those that don’t trade Options this may not interest you unless you like strategy reviews. In the case of $MELI I wanted to sell the elevated Option premium for Earnings and use stock (if need be) to hedge if price got anywhere near my short strikes.

Here was the trade:

MELI_Earnings

With a credit of $12.65 I have a substantial range to work with:

$147.65 to the upside
$117.35 to the downside

I elected to use $140 and $131 as my levels to hedge with stock (if need be). So far I have not needed to hedge. This trade was done with an exception to my 1st week rule.

 

- DM 9:15 AM CST

 

Earnings Trades update

New this week that is still on:

Home Depot $HD  I am short the February 27 weekly $117 Calls

Boston Beer $SAM  See recent Blog post for more details. I am Long the March 260/280/250 RRCS with a Sell Short Stop set at $265 (would be an anticipatory hedge)

MercadoLibre $MELI  I am short the March 135/130 Strangle

 

Exits:

 

- DM 9:05 AM CST

 

A bottom of the barrel look at Boston Beer

SAM

Yikes.
I posted the above chart after I initiated a Short Stock position (2nd trip short stock, post-Earnings). I was looking for a B/O back-test to the $253 area noted on the chart.

It nearly got there as the low for the day is $253.01 (I have covered at $254.70 average). I will be looking for a U-turn Long now for some bounce — will use Options.

 

- DM 9:40 AM CST

 

Position Updates

Exits this week:

  • CF Industries $CF  I unwound the remaining Put Calendar for a $2.27 credit on Thursday. Overall gain: $26.23
  • Foundation Medicine $FMI  I unwound the Diagonal Bear Collar and Short Stock on 2/17. Overall gain: $29.90
  • VASCO Data Security $VDSI  day-trade Long Stock position for +$3.10
  • FXCM $FXCM  I StC the Long $2.50 Calls for a -$.25 loss
  • Intel $INTC  I closed the position in the IRA on 2/18. Overall gain: $3.68
  • LyondellBasell $LYB  The Call Fly and Long Stock auto-unwound for me (Submarine Basket). Overall gain: $3.57
  • Tractor Supply $TSCO  The Long Put Ratio goes poof (Submarine Basket). Position held since 9/25/2014 (bummed the Long stock got called away this week). Overall gain: $18.17
  • Bunge $BG  see Fab 5 post for details

Submarine Basket:

50/50 Basket:

Earnings:

see post this morning for more details

 

Here is the Summary:

Positions_02212015

- DM 8:45 AM CST