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JAN 2021: DOCU $215 – $220 Bull Call Spread

Stock

DOCU

Trade Structure

$215 - $220 Call Spread

Trade Date

1/04/2020

Price Paid

$250

Expiration Days

02/05/2021

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

Most of our watchlist stocks were under pressure last week, which gave us some good entry points. As I have pointed out earlier, with mean reversion trading, the stocks will usually keep going against me after I put on the trade before turning around and heading in my direction. A nice side-effect of this is that you don’t have to jump at a trade alert the moment you see it. If you are busy or see my alert hours later, that is perfectly fine. Most of the time, you will get opportunities to enter the trade at better strikes than what I post if you wait for it. All software stocks have been under pressure lately after the massive run up they have experienced this year. I would simply attribute this to profit taking which is expected after these runups. DOCU has fallen down to a well-established support level of $215 which prompted me to take this trade.

Trade Selection Criteria

Overall market movement

Nasdaq and most of our watchlist stocks were under pressure last week, which gave us some good entry points.

No Earnings or Significant News

Earnings are behind us and were announced on 12/03

Bollinger Bands outside Keltner Channels

Bollinger bands are clearly outside the Keltner Channels.

RSI Analysis

N/A This trade was done based on Support/Resistance

ADX Analysis

N/A This trade was done based on Support/Resistance

Trade Analysis

DOCU took off almost immediately after putting on this trade, but reversed back after a few days. We had to wait until the last week to close this trade. But in the end we banked our 94% ROI as usual on all these trades.

Trade Outcome

WINNER

Profit/Loss

$235

Beginning Account Balance

$9,900

Ending Account Balance

$12,500

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