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Aug 2020: HD $280 – $285 Bull Call Spread

Stock

HD

Trade Structure

$280- $285 Bull Call Spread

Trade Date

08/24/2020

Price Paid

$250

Expiration Days

9/25/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

We have seen this setup before in ANET. I can't explain all my setups in advance as the stock market is an ever-changing environment, but I do get into details when those setups show up. The way this setup works is - you will see a run up before earnings. Don't ask me why it happens (insider trading? news leaks?). I don't know and I don't care. The bottom-line is that it does happen a lot. When you see a nice pre-earnings run up and you are scratching your head, you can almost rest assured that it will be followed by post-earnings profit taking even if the earnings report were great (Unless it is TSLA which defies all logic and rational thinking). We saw a similar pattern on HD. Instead of figuring out why it is happening, our job is to find out when to get in to a trade in these situations. You will see that I got into a trade based on simple support/resistance. 

Trade Selection Criteria

Overall market movement

This is a post-earnings trade. My usual mean reversion parameters don’t apply here. These trades are based on Support/Resistance only

N/A

No Earnings or Significant News

Earnings are behind us and were announced on 08/18

Bollinger Bands outside Keltner Channels

This is a post earnings trade – our regular mean reversion indicators don’t apply here.

N/A

RSI Analysis

This is a post earnings trade – our regular mean reversion indicators don’t apply here.

N/A

ADX Analysis

This is a post earnings trade – our regular mean reversion indicators don’t apply here.

N/A

Trade Analysis

Due to the massive 14% correction in September, this position was a full loser. See the note on bailout trades.

Trade Outcome

LOSER

Profit/Loss

$-250

Beginning Account Balance

$6,385

Ending Account Balance

$5400

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

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