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JUN 2021: MDB $360 – $365 Bull Call Spread

Stock

MDB

Trade Structure

$360- $365 Call Spread

Trade Date

06/30/2021

Price Paid

$250

Expiration Days

7/30/2021

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

MDB has been very strong recently and suddenly gapped down on 6/20 after they announced a secondary stock offering. Although a stock offering does dilute shares, I took this trade based on an exaggerated market reaction (gap-down) on a strong stock. The stock did fall a little further before recovering and is now trading at $362.

Trade Selection Criteria

Overall market movement

May sell-off is behind us and markets are in decent shape. There is no exaggerated movement in the overall markets and this trade is based on purely this stocks own movement. 

N/A

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

I took this trade based on an exaggerated market reaction, so RSI and ADX don’t apply to this trade.

N/A

ADX Analysis

I took this trade based on an exaggerated market reaction, so RSI and ADX don’t apply to this trade.

N/A

Trade Analysis

MDB just went against me after putting this spread on and never recovered. But this trade highlights an important rule that I follow in my trading. i.e cutting losers at 50% loss. This rule although not as important for accounts > $50K but is critical if you want to grow a small account like I do with my $25K challenge. If you follow the 50% loss rule, it creates a statistical advantage for you. By doing this 1 winner should ideally cancel out 2 losers. This is what creates "positive expectancy" and in trading your account will never grow if you don't have positive expectancy built into your trading method.

Trade Outcome

LOSER

Profit/Loss

$125

Beginning Account Balance

$14,400

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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