Skip to main content

2 new trades

Basic materials and Energy more specifically are breaking out and could be ready to play a little catch up with the some of the other industry groups. There has for sure been tons of rotation in the markets and each industry seems to want their turn. Take a look at the 3 month industry performance from Finviz.com below:


Notice Basic Materials is 3rd from the bottom. If this industry can keep buyers interested I think a few stock could be poised to go higher with a kicker in the form of earnings. The two names that I put on today are AA and DRYS (now drys has bee a piece of crap forever and I have tried to play it many times). I may have to black ball DRYS after this trade if it fails me yet again.

AA


They report on 4-14.

Last earnings they rallied all the way up to 17.60 before crashing when reports were disappointing. Last QTR I bought puts going into earnings for AA. But this time my gut tells me it could be different this time. So with that said I am going to trade with a risk reversal.  So I have sold the 3 April $15 puts for $0.75 or $225 and purchased 10 May $15 Calls for $0.64 or $640. Total debit for this trade is $415. AA is currently trading at 14.66 so I am anticipating a move above 15 before options expiration. I am anticipating that AA will close at $15 or higher by option expiration and plan to hold these until expiration as a way to generate some income. I chose to buy the May call options as opposed to the front month April Calls because from experience I have observed that back month options seemed to move better than the front month. I recall last QTR when I bought puts on AA before earnings and ended up making only $100 on the front month options when the back month options were up about $300 or so.


Entry: 14.50

Target: 16 (where it gapped down after last earnings)

Risk: Hard to quantify if my plan is to hold through earnings, but I want to take the trade. But it is better than 1:1.

Reward: $1,000 (If we get that move to 16)

Stop: below 14 if it sells off after earnings.

I know this one is a bit cloudy compared to most of my trades. But this is one of those gut trades that I have to take.

DRYS



They report on 4-29-2010.

This one has been a thorn in my side the past few trades. But I feel like I need to give it another chance. For a few reasons. Beside the chart patter setting up nicely this one has a few things going for it: Basic material are on the rise, rising oil prices (they have oil exposure with deep sea drilling), and earnings coming up at the end of the month. Top all of that off with a continued uptrend in the equities market and that could lead to some long awaited upward momentum. Still to be seen. Nonetheless I am long 10 Jun 6 calls for $0.53 a contract. DRYS is currently trading at $6 even.

I am risking about $300 to make a potential $1,000. But I really want to see a close above $6 over the next few days or I might have to cut the position. And it needs volume.

Oh and for fun here is a chart for Crude:


Comments

Post a Comment

Popular posts from this blog

WOW! I think that sums it up

Many of you have been reading this blog may have noticed that my blogging frequency has increased over the past few weeks as I got short the market. As you can imagine I am down money since getting short the market, this is the time when most people pull away from posting. But my goal is to stay active and involved and show you that trading is not always rainbows and butterflies. It is times like these that the things I have been sharing over the past couple of weeks are so important. You need to trade small relative to your account. I have a decent short position in the market and my portfolios are set up to make some awesome returns if we finally turn lower. But something I would like to point out is that my account is 70% Cash.  I learned a long time ago how important it is to live by the rules you preach. Because of my discipline I am able to continue to hold my positions, I have time and capital on my side. I can't stress enough how important it is not to get to big....
Post a Comment
Read more

Stay Small, Stay Out of Trouble

To expand on my post from yesterday about patience. I want to talk about a very important element that allows patience in a position, and that is staying small. If you trade too big RELATIVE to your personal account size, you are likely to be forced to exit the trade before the trade works in your favor. Many trades myself included have all experienced the pains of trading a position way too large given our account size. There is this predisposition out there that the only way you are going to make money in the financial markets is if you are trading 10 lots of options and 1000 shares of stock at the time. This is not the case, and if this is your mentality you will likely ensure yourself trouble. We have all read the stories of traders blowing up their account. I personally think a good rule of thumb is to not risk more than 5% of your account value on any one position. Good Luck Trading! In The Money Trades And 1 favor that we ask:  If you like the hard work w...
Post a Comment
Read more
more good news from FXStreet : Tom Fitzpatrick, senior technical analyst at Citibank in New York. Monday, July 15, 2002 "Parity is a psychological, not a technical level...and whether we pause around parity or not, we are likely to see significant further dollar losses...Our initial target is $1.03 to $1.0450. If that level is taken out, it actually casts a question mark against the whole of the dollar's rally of the last seven years, and could open up a full-blown bear market for the dollar." Julian Jessop, chief European economist at Standard Chartered Bank. Monday, July 15, 2002 "The dollar is under pressure from everything from economic problems to asset reallocation away from the U.S. and corporate accounting problems. It's difficult to see any positive factor for the dollar at the moment. The root of the problem is the U.S. current account deficit. If the U.S. doesn't have to attract an enormous amount of foreign capital, people wouldn't have to wor...
Post a Comment
Read more