Vertical Spread Option Trade with CUE Bounce Set Up
If you read the many Internet sites explaining Options trading and listen to Options trading educators, you will find a deluge of information explaining how Options trading can be profitable.
Usually they proclaim: if the Stock is moving sideways, do this. If the Stock is going to break out and make a solid up move, do that. If the Options trade is not working out, then evaluate where the Stock is going to go next and adjust the Options. On paper, it all looks great. In reality, if you have traded Options following their advise, you will know that it is not so great in real life.
The secret and the challenge that the Options trading sites and educators do not tell you is how on earth can you know if a Stock is going to move sideways within a given time. Or how you can say if the Stock is going to go up or down in a period.
Why many educators keep quiet on this matter is because they don't have a profitable system to trade the underlying Stock in the first place. If one could do that, one could then apply Options trading strategies to multiply the profit percentage by using the leverage of Options.
Compare this with Superior Profit traders who everyday use the CUE Trading System to trade Stocks profitably. Using CUE System, they can reliably assess which direction a Stock may move (or not move) and make profitable trading decisions. And, therefore, they can also trade Options to multiply their profit on the Stocks using the same CUE Charts.
Here is an example of an Options trade I took recently using CUE Charts. I took this trade on Blackberry (BBRY) using Short Call Vertical (Bear Call Spread) just after Blackberry's earnings.
On 20th Dec 2016 as the USA Market opened, news media were full of reports of positive earnings from Blackberry. Below is one such news alert that caught the eyes of many investors on that day.
An ordinary investor might be tempted to buy Blackberry Stock on the news. After all, Blackberry lost only 0.22 cents per share in the current quarter compared to the loss of 0.71 cents in the previous quarter. And the Stock was indeed up 1 percent after earnings.
Looking farther back, Blackberry was down about 20% over last one year whereas S&P500 was up about 10%. BBRY was lagging the broad market, and one could think that the time has come for Blackberry to turn the corner and start going up after the earnings.
Like many other investors, I am aware of such earnigns news (I use Metastock Xenith/Thomson Reuters EIKON for news), and I am also cognizant of the earnings results/earnings surprise etc. However, unlike many other investors, I rely on CUE Charts to make my final trading decision. In fact, all Superior Profit Traders do the same every day. Let me explain how I took this very profitable trade.
Below is the CUE At A Glance view of BBRY after earnings showing how the trade was entered and how profit was booked. This snapshot of BBRY was taken during intraday on 22nd Dec as the Short Vertical Trade was partially exited with a profit.
As can be seen from the chart above, after earnings, BBRY tired to go up on 20th Dec. However, it had clear Memory Resistance above. That Memory Resistance proved strong enough, and the Stock reversed from that resistance with Extreme High Activity. This reversal was an opportunity to take a Superior Profit Bounce Short Trade.
What is Bounce Trade Setup? It is a situation where a Stock meets pre-existing Memory Trendline Resistance and then bounces down from there with extreme Activity (volume).
The Bounce Bearish Trade Signal came at the end of 20th Dec 2016. And the Bearish trade was established next day on 21st Dec, soon after USA Market Open, using CUE Fine Tune Real Time chart (not shown here). Below is the Reward/Risk profile of the trade as it was initiated.
At the time of entry, BBRY was just below 7.5$. For my trade, I used the BBRY 20th Jan 2017, 7.5/8 Short Call Vertical; thereby entering a Bearish trade.
This spread had about one month time and I was expecting BBRY to go down enough to let me book a good profit within one month. I used OTM strikes to set up the spread. This credit spread resulted in a positive Theta trade. Resulting in time decay favoring my trade; that is; the position would profit a little bit of money every passing day due to positive Theta.
I established Vertical Spread for a credit of 0.14$. Immediately after entry, I placed a Good Till Cancelled (GTC) order to buy back half of the position at half my credit amount; that is at 0.7$.
Very next day, on 22nd Dec, BBRY fell further, and my GTC order was filled. Resulting in 50% profit (calculated as 0.7$ profit on the original credit of 0.14$).
Today BBRY Closed above the Memory Support line - this can be seen from the CUE Chart snapshot below; taken at the end of 22nd Dec.
This day also had Heavy Activity. However, this is not a Bounce Long Setup. Such a setup would require the Close being above Last Day's Close. Which was not true in this case.
What will happen to BBRY tomorrow? Overall BBRY is Bearish in Weekly Backdrop chart (not shown here) though it has support at Memory Trendline in Daily chart. We don't know for sure what will happen to BBRY next. However, I have already booked partial profit. And will make sure that the rest of the position does not go into a loss. Thereby making it a Risk-Free trade from now on.
This BBRY Vertical Spread Options Trade shows how Superior Profit Traders trade Options. Using CUE Charts to analyze and determine which direction the Stock is more likely to move. And then use an Options strategy that helps take advantage of that potential move.
Once you use CUE Charts, you would also be able to uncover the untold secret of making a profit from Options. The "untold" secret being: "how to determine a Stock's potential move first; before deciding upon an Options Strategy." CUE Charts and the unambiguous rules of Superior Profit Way comes of good use to Options traders; just as is invaluable to a Stock Trader.