Updated: Jun 8
Traders shouldn't fall in love with specific stocks. However, when you get a "feel" about a stock, that keeps on doing the same patterns, you must generate some low risk ideas about how to trade it.
In the previous posts, I showed you how I traded SPCE (Virgin Galactic Holdings) over the last year:
Deja Vu - SPCE
RLFF Mean Reversion -SPCE
And so, the same old support was hit again, and options prices becoming interesting once more ….
Looking at the 65min chart, I could time my entry using the SSC technique.
I could buy 20 call18 for 1 month at 1.2$ (2.4K) which gives me the right to buy 2000 shares of SPCE at 18$ each for the next month. Given the historical volatility of that stock, it didn't seem unreasonable to give it a target of 26 (1 : 5.6 R:R ratio). In my opinion, this is how low risk idea looks like.
A few days later, as I watched the pre-market action, I was pleased to see SPCE going up 20%. The news were that they scheduled a test flight to May 22.
When the market gives you a gift, it is not the time to start to dream about big winners. I didn't find the news to be so dramatic (it was already up 20% !!!) , and decided to sell 2000 shares at 20.5 at the pre-market session, which is locking-in 2.5$ per option and benefiting even more if it goes under 18.
The stock begin the session high at started to go down to 19, where I bought 1000 back, and waiting with the other 1000, hoping to buy at 18.
Then, the stock reversed and started to go up again, so I covered the rest of my short at 20, which mean I took out almost all of my initial risk (2k) and decided to stay with the options for a swing up.
The next when SPCE continued to go up, I decided to lock-in more gains, by selling Call26 for 1.35$ (2.7K) and creating a vertical spread (18/26) that can pay up to 8$ (16k) if SPCE will be above 26 at expiration date (about 1 month).
The reason for moving into spread, is that I don't want to take the risk if something bad will happen tomorrow with the flight test. I don't want to end this trade without any profit. However, I still give this position the opportunity to run and give me great profits. (this can still become a 6.5R winner).
To the moon...
May 24th update:
After a successful flight test, SPCE was trading more than 30% up in the pre market. When it started the session it gave back half of the gains, but looked very strong. I decided to close the upper leg of the spread (c26) for a 0.85$ loss (2.2$) , and let the C18 run.
Later the stock started to go up again, all the way back to 28%.
Here, I locked-in gains by using the Collar strategy. Buying put 25 and financing it by selling Call 31. I also sold put 18, because I don't need the protection under 18. And so, for no additional cost added I locked-in the spread between 18 & 25 (7$). If there is going to be some kind of a surprise secondary offering, I won't loss all of the profits.
As for the upside, I can still let it run and profit all the way up to 31 (call 18 to 31 spread) which will pay 13$ (26K).
5R in hand & potential for 10R.
May 28th update:
Buying put27 selling put25 at a cost of 0.5$. Locking-in another 2$ payout.
Now, the 18-27 spread is secured.
Jun 8th update:
And rolling the put27 to put31. 1 synthetic long on 18 strike and 1 synthetic short on strike 31. The box is closed.
The following trade frame is an example for educational purpose only.
We are not an investment advisory services, nor are we registered investment advisors or broker-dealers and do not purport to tell or suggest which securities customers should buy or sell for themselves. Customers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment.
It should not be assumed that the methods, techniques, or indicators presented in this example will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. We, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.