Some stocks are left better untraded!
After watching CME for weeks and waiting for it to come into resistance
I decided to take on some puts. The stock is too expensive to trade, for
me, and the options move with very nice ranges. That volatility can be
your best friend or your worst enemy and once on the wrong side it just
doesn’t improve.
June 26, 2006 CME traded up to the resistance, a possible double top at
488.20. I did see that it could be grinding out a cup and handle and the
unfilled gap above, but I also knew the resistance level had held back in May so
I waited for the next day to find weakness and confirmation on my setup. The low
on the 26th was 476.50 so on the 27th I entered at
that level, seeing it near end of day it was confirming the setup for
me. MACD and CCI both headed down with price on the 27th and pointed to
lower ground. Fibonacci level 78.6% at 485.57 held as resistance so I
felt the risk was probably 4.00 and the reward would be a minimum of
10.00 it was a nice risk/reward with a premium of $12.00.
My entry on the July 470.00 puts was at 12.00 near the end of the day on the
27th . I wake on the 28th and see NO gap on the stock, which is always a relief
because gapping over resistance is a night mare when you are short or in puts. I
see the stock break the lows from the 27th and
feel very good. The puts are rising to 16.00 (the high that day was
16.60), I have an order to take half the position off at 18.00 so I
leave it and try not to micro manage things. Only to see the stock pull
up and the puts close that day at 12.60, just 60 cents over my entry but
still closing the stock under the prior days lows. I leave it and stick
to the plan of half off at 18.00 and looking for more than 22.00 move
with another drop on the stock for the other half of my position.
Wake on the 29th to see the stock up from the prior days close, but
still under resistance and know this stock has some range in it and can
move so I leave it and stick to my plan. The options opened at 10.30 and
never went over 11.50 on the day, stopping me out mid day at 7.80 and
still dropping. So the stop out was good, but painful. I planned 4.00
but with options you always know the risk can be more and I exited with
a loss of 4.20.
When you trade big stocks like CME the risk is always great and moves of
20% can be a gift, but I did not adapt to that and kept to my higher
target only to take a loss at the end of the ordeal. To make matters
worse I watch the stock climb up to 500 to fill that unfilled gap and
stop at that resistance and do NOT reenter the position and now it has
fallen for 6 days from 500 into 465. Gun shy is never a good thing, but
only human.
