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Dec 2019: BKNG $2067- $2037 Bear Put Spread

Stock

BKNG

Trade Structure

$2067-$2037 Bear Put Spread

Trade Date

12/30/2019

Expiration Days

01/24/2020

Trade Rationale

Dec 2019: BKNG $2067-$2037 Bear Put Spread. With the market on a tear, BKNG has been making new highs day after day. Finally on 12/30 we see a red candle showing signs of a possible exhaustion. ADX is still below 40 which means there is no clear signs of this trend continuing. On top of that RSI is giving us a very clear signal. It was in the overbought territory and finally dipped below 70 indicating a possible trend exhaustion.

Trade Selection Criteria

Overall market movement

Overall market has been on a tear for weeks. I mean look at BKNG, looks like it is invincible and will never stop. However, our first red candle after this extended trend combined with RSI is giving us a possible trading opportunity here.

No Earnings or Significant News

Earnings are behind us and the next earnings will be after our expiration cycle. Earnings scheduled for 02/26/2020

Bollinger Bands outside Keltner Channels

Bollinger Bands are clearly outside Keltner Channels. Perfect time for a mean reversion trade 

RSI Analysis

RSI finally dipped below 70 after being in over-bought territory for quite some time, indicating a possible trend reversal.

ADX Analysis

ADX is weak and does not give any clear signals about the current trend.

Trade Analysis

After I put on my position the stock went down for a day and then resumed its march to make new highs. However, I did not lose 50% of my investment at this time so I held on to the position. If you have read my book you will notice that this is inline with my loss management criteria. Fast forward to 1/24 expiration day, the stock crashed and burned allowing me to close the position for a 100% profit.

Trade Outcome

Winner

Profit/Loss

$1200

Beginning Account Balance

$16,200

Ending Account Balance

$16,400

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

9 Comments

  1. Fred Ferenczhalmy

    Looks like this ones a winner.

    Reply
    • Nishant

      Yes Fred. An absolute winner. I will be updating the open positions this weekend to reflect the outcomes.

      Reply
  2. Albert Johnson

    Really enjoyed your book and lessons – but was a little impatient to try out your methods and jumped into a bullish vertical trade on Google perhaps too soon – but have until Feb 21st – so we’ll see. Left a positive review on Amazon and telling friends about book.

    Reply
    • Nishant

      Albert, thanks for the kind words and sharing my book. Just curious what does your spread look like?

      Reply
  3. Albert Johnson

    Goog Feb 21 2020 vertical call spread 1480/1485; Though most indicators were heading up even after multiple green bar days, RSI strong and ADX over 50 – may have taken a long position too soon – but have some time and not down 50% yet. .

    Reply
  4. Albert Johnson

    Looks like when you open several positions in one month – you still make sure to never have more than a 1/3 of your invested capital at risk or in play- correct? Any particular reason to limit a specific trade to $600-800 when you could go higher? Or just diversifying/spreading your risk even with that 1/3?

    Reply
    • Nishant

      Albert, weird that I just saw your comment after so long. Yes, I am doing it for diversification and spreading risk. Not putting all my eggs in 1 basket basically.

      Reply
  5. Maurice Matthews

    Quick question with a $30 spread shouldn’t the cost be closer to $2000 or am I thinking about the pricing incorrectly?

    Reply
  6. Maurice Matthews

    I caught my mistake. It should be closer to $1500. ~$250 per 5 point spread.

    Reply

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