We are reviewing this week Option Trading Strategies we use to make money online and what we learned about them.
Option Trading Strategies: WDC Puts
This is Earning season which make it a great time for trader to find favorable setups they can take advantage of.
.We are strictly picking stocks to trades from our Watch List.
Western Digital has been a prominent member of our Watch List for years and a perfect candidate for both Day trades and Swing trades.
The Setup on WDC
Today, we are sharing the trade we took after Earnings Release (ER).
In fact, 99% of the time, we do not gamble on Pre-ER because it is not worth it.
Because there are far more safer Option Trading Strategies to make good money after the results are announced.
Earnings report came Wednesday after market close and the stock immediately plunged.
At one point, WDC was down almost 11% in After Hours from $62 close to below $55.
Then it settled down around -7.5%.
By the time end of Pre-market Thursday, a small gap up occurred from $55 to $57.5 with heavy volume in pre-market.
Yet no significant price move between 8am EST and 9:30am EST.
I was determined to trade it either direction because of the heavy volume: this is a good reason here for trading Post Earnings.
So I waited until the price dropped below $57 and enter Nov 1 54.5 Puts for 33 cents per contract.
Each contract controls 100 shares so my actual cost per contract was $33.
Option Trading Strategies on Entry
Unlike the trade on AMZN last Week, the cheap nature of these Western Digital Puts enabled me to buy 4 contracts.
This setup is known as a Classic Momentum Short : A gap down on heavy volume that continues in that direction.
This was a stress free trade as one can see on the timeline of it duration.
I bought 4 Puts Contracts at 6:34 AM EST
Option Trading Strategies on Exit
This is the (almost) perfect illustration of a scaled exit on a Day trade. Below are my Sell Orders from left to right.
- 9:34 AM EST : Buy Order (See above) at 33 cents
- 9:36 AM EST : 1st Exit on 2 Contracts at 70 cents : 110% gain in 2 minutes !!! Yes.
- 9:40 AM EST : 2nd Exit on 1 Contract at 87 cents : 160% gain on this one Contract
- 9:55 AM EST : 3rd and Last Exit on 1 contract at $1.16 : 250% on this one Contract
So, in the span of 21 minutes, my position generated a Net Profit of : $ 200 or 150% from the original risk.
Nice, you think right ? these Puts I sold were worth $2.80 before the end of the closing day !!!
This trade generated a net profit of $200. However, much more money could have been made in this trade.
So I left money on the table on this trade.
We will address this topic later.
I hope you enjoy the review of this trade. Should you have questions, please leave me your thoughts on this trade in the comments section below.
How would you have reacted if you were in my situation in this trade ?
The Setup on FCX Calls Options Trade
Freeport-McMoran Copper &Gold Inc (Ticker: FCX) is a tiny $10 stock I discovered this year.
What makes this stock attractive for Options trading is the fact that its option are cheap with Low volatility while the stock itself can be quite volatile.
So, FCX has been in my Watch List on which I run my IB report.
Yesterday Thursday October 31, my favorite signal on the IB report alerted on FCX.
That was the reason for me to setup this overnight swing trade.
To be totally honest, there was another indicator for this trade. That is pure observation of how the stock has been trading on each day recently.
Yes, a lot of stock have pattern that they like to repeat.
In that sentence, the “They” is not for the stock but really for the computers (Algos) that control these stocks.
Below, is an excerpt of an exchange with my buddy Piti 🙂 on Thursday just before the closing of the market.
The above exchange took place after I had exited the Western Digital (Ticker: WDC) trade I described above.
The Entry into the Trade
I automated my entry for calls at the lowest possible bid I was comfortable with : 3 cents per contract.
Why did I choose the calls instead of the Puts ? Remember the exchange above with Piti where in recent Fridays, FCX has moved significantly on Friday morning.
So this was a Lotto play with a defined of $45 !!
Below was the entry execution. My entry was filled while I was driving into my office.
I clearly remember laughing to myself when the alert came on my phone. True story.
I was mostly amused by the facts that I had entered into 15 contracts. Typically, 10 contracts per position is my limit to avoid the fees.
My broker charges me 35 cents per contract. I have been a customer for many years so I was able to negotiate that rate a few years back.
The Exit out of the Trade on Friday morning
This was another almost perfect illustration of a scaled exit on a Day trade. Below are my Sell Orders from left to right.
- 10:59 AM EST : Limit Order Placed (See above) at 3 cents per contract – Filled at 11:36AM on Thursday 10/31
- 9:50 AM EST : 1st Exit on 7 Contracts at 15 cents : 400% gain
- 10:05 AM EST : 2nd Exit on 5 Contracts at 20 cents : 560% gain on these Contracts
- 10:37 AM EST : 3rd and Last Exit on 3 contracts at 19 cents : 530% on these Contracts
So, in less than 24 hours (overnight Swing Trade), my initial position of $50 ( I am including the fees) generated a Net Profit of : $ 206 or 412% from the original Risk.
There is a lot to unpack from this trade on FCX. From my reasons for the entries to the scaled exit.
By 1pm EST on Friday November 1 2019, those FCX 10 Calls were trading for 55 cents.
I made 400% or so on this trade but the trade went all the way to over 1600%.
If you are thinking , wait a minute, this is unusual or I hand picked this example: well send me your thoughts, comments below.
I will be glad to open your mind on the insights of Option Trading Strategies on Expiration Friday.