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JUL 2021: DOCU $290- $285 Bear Put Spread

Stock

DOCU

Trade Structure

$290- $285 Put Spread

Trade Date

07/06/2021

Price Paid

$250

Expiration Days

7/16/2021

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

DOCU went parabolic after beating earnings. I took this trade after seeing signs of exhaustion as indicated in the chart below. However, it needs to be seen how this trade reacts next week. It all depends on the markets in general. Green markets will test all our put spreads. 1 or 2 red days will turn all of these profitable.

Trade Selection Criteria

Overall market movement

Markets have gone parabolic and I took this trade based on extreme highs in literally all the stocks in our watchlist.

No Earnings or Significant News

Earnings are behind us and were announced on 6/3

Bollinger Bands outside Keltner Channels

Bollinger bands are clearly outside Keltner Channels.

RSI Analysis

RSI is in overbought zone but not conclusive.

N/A

ADX Analysis

DI+ is sharply turning down indicating a temporary loss of upward momentum

Trade Analysis

I haven’t been trading bear put spreads at all for the last year. And this is still not going to become a part of my strategy going forward in the current bullish environment. However, when markets are peaking like this, that is the only time I want to try out these spreads on stocks which seem to be over-stretched to the upside. If we continue to rip higher next week, I will not take any more of these spreads and simply go back into silent mode and keep looking for those 1-off Bull Call Spreads. Bear Put spreads have a very low success rate during bull markets and your best bet is to sit back and relax when markets are peaking and just bring your portfolio allocations down between 12% - 20%. This is esp. true for smaller accounts. If you have larger accounts > $25K, there is no harm experimenting with these positions. This trade worked out for me in literally 9 days. No complaints about a 90% ROI in 9 days!

Trade Outcome

WINNER

Profit/Loss

$235

Beginning Account Balance

$15,200

Ending Account Balance

$15,500

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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