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Oct 2019: GOOG $1180 – $1200 Bull Call Spread

Stock

GOOG

Trade Structure

$1180-$1200 Bull Call Spread

Trade Date

10/02/2019

Expiration Days

10/15/2019

Trade Rationale

GOOG suddenly dropped on no "real news". And is now touching the lower bollinger bands. Following a limited universe of stocks allows me to know instinctively that this is a clear candidate for a mean reversion trade. The indicators I use haven't caught up yet. Let us see how this trade plays out. We have only 2 weeks for this trade to play out. NOTE: Someone asked me in the comments below why did I do a short trade of 2 weeks instead of the usual 30 days. In this case, GOOG earnings were fast approaching on 10/28 and I didn't want my trade going into the last week of earnings. However, the opportunity was staring at my face and I still wanted to take a stab at it.

Trade Selection Criteria

Overall market movement

The overall market had a big down day today. However, there is no fundamental reason supporting the sudden pullback.

No Earnings or Significant News

Earnings are behind us and the next earnings will be after our expiration cycle. 

Bollinger Bands outside Keltner Channels

Bollinger Bands are way outside Keltner Channels. We love these scenarios. These are perfect opportunities for mean reversion trades.

RSI Analysis

RSI is clearly in oversold territory. But is not giving a clear indication of a trend reversal.

ADX Analysis

ADX is flat and low confirming that this sudden drop in price is not sustainable.

Trade Analysis

The stock immediately went in our direction allowing us to bag a nice profit of $896 in 2 weeks. Notice why I keep harping in my book about following a limited set of stocks. This allows you to develop a gut feel which gives you opportunities even when the indicators haven't caught up yet.

Trade Outcome

Winner

Profit/Loss

$896

Beginning Account Balance

$9,400

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

2 Comments

  1. Arron Lee

    how come some trade you put in two weeks and some you put on 30 days?

    Reply
    • Nishant

      Great question. I usually do trades lasting 30+ days. In this case GOOG earnings were fast approaching on 10/28 and I wanted to avoid any trades going into the last week before earnings. However, the opportunity was staring in my face and I wanted to take a chance on it, so the only option I had left was to do a shorter trade.

      Reply

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