Thursday, December 2, 2010

My game plan for tomorrow...

After much thinking I have realized that it is unrealistic for me to day trade the weekly options for three major reasons. One, I am not able to trade in and out of these options numerous times intra day which would allow to take tiny losses until I land a big winner. An absolute must for day traders. Secondly, I cannot say that I would have an edge day trading the underlying stocks with the exception of a few that trade weekly options. So I had to realistically ask my self: how can you make money with the options if you cannot make money from the stocks? Thirdly, trading this often at such commission rates is unsustainable and not necessary.

On the upside I have come to realize that the stocks I track an usually like to trade (small cap momentum stocks and hot IPO's) have been making big moves from set ups that I notice the night before and watch explode with out me intra day (like SOL and JASO which I highlighted last week and CPWM today).

I also realise that with my account the level its at now it will take me an eternity to grow it if I trade stocks only. Essentially I need the leverage of options to supercharge the growth of my account. Although its really nice to trade weeklies, I can trade the front month options in their place just as easily as long as the liquidity is there.

So I have decided to merge both. That is, I will stick with trading what I know. However, instead of trading the underlying I will trade the front month options in their place when available. I will trade the options the same way as if I were trading the underlying. I will swing trade them as opposed to day trade. This will ease alot of pressure and instead of only being able to trade three times every five days; I will now be able to trade as often as I want. The day trades will only be used up when I initiate a position that stops me out the same day. Although it can happen, it is unlikely that I will get stopped out three days in a row. Even if it does, so what? Take a few days off then back to trading!

So here is my plan for tomorrow. With the markets having a huge breadth thrust today after 4 week decline I am leaning on the bullish side. So I have thr long ideas on my radar.

FTNT: this hot IPO is currently forming a beautiful ascending triangle after gapping up on massive volume in late October on better than expected earnings. If it breaks the upper trend line I will get long the Dec 18 $35.00 Call Options. My stop on this trade will be below the $31.00 price level. These options have a delta of about 0.26. So I will be risking about $52.00 per option since the entry price is about $33.00. However, I will hope to be out this trade long before that price level is hit if the break out fails.

RVBD: ordinarily I would not look to trade this stock but since I'm targeting the options instead of the stock this set now looks a lot more attractive. RVBD is flagging out beautifully beneath all time highs so break out here could see a nice pop. Although I prefer the set up in FTNT, should RVBD break out first I will go with it ahead of FTNT. For this set up I will be targeting the Dec 18 $36.00 Call Options on a break out from the bull flag. Since this option has a delta of about 0.36 and I will be risking about $1.30 on the trade then my risk will be roughly $46.80 per contract if stopped out. Again I will hope to be out long before the stop is hit.

The third idea is HDY. I will be looking at the Dec 18 $2.50 Calls on a break above $3.36.

I believe that this is a vast improvement to my previous gambling with weekly options and gives me a much better chance for success. My only problem now is that I have no day trades left. So if I get into a position and it does not work as I would have liked then I will be forced to hold the options till next Monday. So in light of this I will wait for extra confirmation before entering a trade or simply not trade at all.

Here's to the future!

Good luck and good trading!

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