Friday, May 6, 2016

Turning a Long Term Investment Idea into a 60% Profit Day Trade

From the Office of Sagar Nandi and Superior Profit:

A Long Term Investment idea was shared in Superior Profit Traders Community few days ago on 3rd May 2016 - on Valeant (Thomson Reuters symbol VRX); a well known Pharma company listed in USA market.

Detail analysis of the VRX Long Term Investment idea using CUE Charts can be found in the Community Post here.

Long Term Investing and Day Trades are supposed to be at opposite extreme to each other in terms of holding period, risk reward magnitude or investor temperament; among other things.

Yet, on 5th May, one of the CUE System traders made 60% net profit in a couple of hours from a Valeant Day Trade; rooting the trade on the Long Term Investment idea published  in the Superior Profit Community. Here is how.

​​In the Long Term Investment post, It was not explained to be not a perfect time for stock buying as earnings was about to be released (which has not been released yet as of this posting - it may be released tomorrow before market open).

And instead, people could Short the Put taking advantage of high Option prices at this time and thereby potentially making profit as / if stock goes up and Put expiring worthless. Or at minimum, getting the Stock at very discounted price - if the stock falls. 


​In fact, on 5th May (today), one could Short VRX 15th July 2016 Put 32.5 at around 5 USD.

VRX closing price on 5th May turned out to be about 34.5.

So, if the Long Term Investor using Short the above Put Option turned out to be wrong in his directional call i.e. if VRX fell considerably after his Long trade, he would at least secure a price that is about 7 USD lower than buying the stock outright. [ 7 USD = difference between current market price and strike price which is 2 USD and the premium sold which is 5 USD].

This 7 USD lower price is actually about 20% of current market price of VRX.

That is, our Long Term Investor would end up buying VRX at 20% lower than current market price - and VRX is already at Pendum Low !

Not a bad deal after all. This advantageous trade set up was made possible by inflated premium on the Put Option just before earnings.

Some of the Superior Profit Investors might have indeed Shorted the Put based on the Community post. However, that is not the only way you could profit from that post.

One CUE System trader used the Long Term Investment idea post to make a quick Day Trade profit on VRX using CUE Fine Tune Template.

He used the standard CUE Stretch Release entry mechanism for the Day Trade.

Let me explain the entry and exits here using the CUE Fine Tune chart below . I have added some additional information that could be gleaned from Metastock Xenith. 

​Point 1 on chart below (impact of news) > 4th May 2016: At 12:30 PM Valeant took a dip (at that time reaching 3.7% down) after one big investor said he is still Short Valeant.

Was the news impactful? Not really. After the initial knee jerk reaction , VRX recovered somewhat and closed above the Day's Low. From 12:45 PM onward Activity was mostly timid.

 ​​Point 2 on chart above> Next day (today) Valeant opened almost at same level as yesterday's Close. Then moved down little bit - penetrating Early Range Low for 1 Candle (5 Minute is the default interval in CUE Fine Tune Template). And very next Candle provided confluence of multiple signals:

A) Trader was looking for only Long trade based on the post in Traders Community.
B) At this point, Bearish Stretch was Released (Oversold condition went away).
C) Stretch Released was accompanied with Heavy Activity in the bar - indicating the volume was attempting to hold price.
D) Price closed back above Early Range Low.
E) Stop Loss Point (just below day's low) was very small.
F) Potential profit - assuming it was going to hit at least Early Range High or Last Day's Close - was much bigger than the Stop Loss distance - giving an attractive Reward Risk Ratio.

That looked like a good Low Risk entry point for a bullish position on Valeant for Day Trade using CUE Fine Tune Template.

It could be traded as plain Stock Long Day Trade.

This trader, instead, played it as a Short Put Day Trade - taking a cue from the posting in Traders Community.

He used the Option VRX 6th May Put 33.5 to establish a Short Put position (which is a Bullish position on the stock).

Immediately after entering, half position profit taking order was placed at 50%. That was hit during the day (in Superior Profit Way, we always like to Take Money Off The Table when we can). Rest was held till end of day.

Valeant meandered throughout the day within Early Range. At end of day the position had 70% profit and entire remaining position was closed at that time - as this was planned to be a Day Trade.

Below is the brokerage snapshot where the trade was actually placed.

Note that during the day max profit percentage hit was actually 78%.  Overall the trader closed the trade at 60% (average of 50% and 70%) profit. A sizeable profit indeed.

The trade was concocted from the Long Term Investment idea posted in Superior Profit Traders Community and applying Real Time Fine Tune chart analysis and identifying a CUE Stretch Release Bullish Day Trade.

Once a CUE trader gets accustomed to this color coded and easy to use system, she/he tends to identify and execute such trades routinely and effortlessly.

For more information on how to trade using CUE System, you may refer to the extensive educational material at Superior Profit Education Center.

Does your system and technique allow you to cook up such trade opportunities in an equally easy, unambiguous way and,  may I say, fun way?

Sagar

These products are not a recommendation to buy or sell, but rather a guideline to interpreting the specified analysis methods. Only investors who are aware of the risks inherent in securities trading should use this information. MetaStock in no way endorses the products and services advertised and accept no liability whatsoever for any loss arising from any use of these products or their contents.
Post a Comment