- This topic has 1 reply, 1 voice, and was last updated 8 years, 1 month ago by .
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.
Become a Great Options Trader
Home › Forums › Swing Trades › Full Risk Long in BABA
Here’s the chart:
Here’s a list of reason’s why I’m bullish:
1. Failed breakdown. The stock broke the IPO support level right around 83 but couldn’t head lower. A failure to lose a key level is just as important as any kind of pattern fulfillment.
2. RSI divergence. The stock made a new lower low, but the RSI started to turn up. That means the momentum is starting to shift and buyers could come back into control.
3. An almost marubozu candle. This is the big turn. Back in early march when the stock broke down, the very next day there was a Marubozu candle — opening at the lows and closing at the highs. There was a slight pullback so it’s not a pure marubozu, but it’s enough to say that there’s the potential turn.
4. IPO Lockup. Most likely much of the selling recently was done in anticipation of the IPO lockup, but now that it is out of the way it is potentially a “buy the news” kind of event.
Here’s the reason the bullish trade may not work:
1. The trend is down. This is the biggest risk, because even though the stock potentially could be making a turn here, there’s always a possibility that sellers show up again in force and knock the stock down.
So I want to play the turn, and IV is pretty low. So a FULL RISK call buy makes sense here. Use the call premium as a stop, don’t try and set price stops because there’s a possibility a stop run will happen and then a reversal.
Here’s the trade:
Buy to open BABA Apr 85 call @1.80 or lower
Assume full risk.
Sell half at 87.
Stock is at 87, I’m selling out of all the calls because there’s only 8 days to expiration.
Also, the stock is gapping above it’s bollinger band, and it’s based of the china move and china is running really hot.
Sell to close BABA Apr 85 call @2.80
If you want to try and trail a stop that’s fine, use 86.50.