Market Curiosity: Exploring Markets And Systems

January 26, 2011

Sell ECA puts (+90%) on backtest of triangle breakout, partial profit on calls +116%

Filed under: +76 to +100%, +Over +101%, Favorite Posts, Long Calls, Mistakes, Short Puts — Tags: , — Jeff Fitzmyers @ 12:00 pm

Sold ECA FEB 28 puts for $68 per contract.

– 3 distribution days the last week.
+ Tested the 34 EMA twice and closed higher.
+ Rising monthly and weekly CCI’s.
+/- Price is in a triangle and probably won’t close below the lower trend line without at least a bounce.

While looking at the chart I had a feeling I was missing something. I was. Here is the first chart I was looking at:

Here is a better accurate chart:

Drawing correct trend lines is critical. This new line makes the situation more bullish: Price is backtesting a breakout. It’s actaully time to consider buying the stock, or in the money puts, or even calls.

I like how Trader Vic draws them:

In analyzing a trend on the charts, the most useful tool is the trendline. One of the biggest mistakes made by amateurs and professionals alike is inconsistently defining and drawing the trendline. To be useful, the trendline must accurately reflect the definition of the trend. The method I have devised is very simple and very consistent. It fits both the definition of a trend and the inferences drawn from Dow Theory pertaining to the elements of a change in trend… For an uptrend within the period of consideration, draw a line from the lowest low, up and to the highest minor low point preceding the highest high so that the line does not pass though prices between the two low points… While this method is quite simple, it is extremely consistent and very accurate. The slope of this trendline is a close approximation of the slope you would get by doing a linear regression analysis on the price data over the same time period. Unlike other methods, it prevents you from drawing a trendline to suit your purposes — it prevents you from imposing your wish onto the trendline. It also provides the basis to graphically determine when a change of trend has occurred.

UPDATES:
Jan 12th: bought April 30 calls for $1.25 Lessons: Don’t buy calls in the first 30 -60 minutes of trade. It’s called amateur hour for a reason!

Jan 13th: Decided not to take partial profit yet since the move seems rather strong.

Jan 18th: Took partial profit of $2.79 / option for +120%.

Jan 22: According to Rick Ackerman, passing 2 past left peaks (circled) is bullish.

Jan 25: Covered the short puts at $0.07. +90%
Very well might close out the rest of the calls soon.
– Daily RSI > 70 and that rarely happens in this stock. Occasionally price can go up more, but in the data I have, RSI > 70 always lead to a pullback to the 34 EMA (or so).

Jan 28: Sold calls for 2.65 +112%.

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