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Aug 2019: FB $185-$195 Call Spread

Stock

FB

Trade Structure

$185-$195 Call Debit Spread

Trade Date

8/6/2019

Expiration Days

9/20/2019

Trade Rationale

After the whole market had been under pressure for a week, this was the first day where the 3 indices were showing signs of recover. FB also showed us a nice green candle after being in oversold territory.

Trade Selection Criteria

Overall market movement

The overall market had been under pressure for a week and was showing signs of recovery after being in oversold territory.

No Earnings or Significant News

Earnings are behind us and were announced on 7/24. There is no significant news or earnings event during our trade cycle.

Bollinger Bands outside Keltner Channels

Bollinger Bands are outside Keltner Channels. We are not in a squeeze or low volatility period.

RSI Analysis

RSI is showing clear signs of change in trend after being in oversold territory.

ADX Analysis

DI- is pointing downwards pointing to a lose in momentum of the previous downward trend. ADX is not showing any clear signs.

Trade Analysis

Although, it sounded like a great trade. And in fact the 2 other trades we did on that day (GOOG, AMZN) turned out to be 100% profitable. FB just got stuck in a sideways pattern and never recovered. Fortunately, we didn't lose any money on this trade. In fact we made a whopping $17!! With 7 days remaining to expiration, we decided to close this trade on 9/11.

Trade Outcome

SCRATCH

Profit/Loss

$17

Beginning Account Balance

$

Ending Account Balance

$

To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

6 Comments

  1. C T

    Hello, I sent in a question but decided to buy the book and learn more of your set ups. Are you primarily using debit spreads?

    Was wondering if DITM long Calls/Puts could be used with your strategy as well?

    Thanks

    CT

    Reply
    • Nishant

      Hi,

      I do use debit spreads more than credit spreads. To answer your question – yes, DITM calls/puts could be used instead of spreads. However, I encourage you to open a papertrading account and compare the performance of spreads vs naked calls/puts and find out what works better for you. I personally used to buy DITM calls/puts in my earlier years, but I realized that spreads worked way better for my risk appetite and portfolio size. DITM options can get very expensive compared to spreads, and when the trade goes against you, it will cause you to make irrational decisions. In fact, even if it goes in your direction, I was personally having a hard time deciding when to close my positions. With spreads, closing your position is a no-brainer, since the profits are limited.

      Hope that helps. Also, if you don’t mind, I will appreciate it if you can leave a 1-liner review for my book.

      Reply
      • C T

        Nishant:

        Thanks for the reply. When doing these trades as debit spreads how many contracts do you usually trade?

        Few more questions as well:

        Are these trades based off daily charts? I assume they are.

        Are you using any other times frames to evaluate the equity and the market bias?

        Once you have a qualified trade do you enter regardless of the time of the trading day?

        CT

        Reply
        • Nishant

          I usually trade only 1 contract. When I start out with a smaller account ($2500) my spreads are $5 wide. But as the account starts approaching $20K, my spreads may get as wide as $30. So, basically when I want to increase risk, I simply increase spread width instead of adding more contracts. This has 2 benefits.
          1. Wider spreads, yield results faster
          2. If you increase contracts, you pay more commission. But with wider spreads, the commission stays the same.

          Reply
  2. C T

    Nishant:

    Hello, I recently purchased your book. I thought it was great, quick easy read, to the point and informative. I’ve already shared the book with a few other friends so they can order it, was well worth the $20.00 dollars.

    CT

    Reply
  3. Alec Zemouli

    I just bought the book and read it in 2 days. Very clear and to the point. Strategy seems very simple and effective. This website also helps with past trades analysis. I will try the “system” with paper trading for 4-5 months before trying it with real $. Great read. Great book.

    Reply

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