If you take a closer look at the chart this stock has basically been trading sideways from 2003-2009 between 4 & 10 bucks. And from what I have been reading about technical analysis the long something consolidates or trades sideways the more powerful the move and the momentum in the direction of the breakout move will be. And the reason it works like this is all the people that have been accumulating it for the last 9 years are in a position of strength meaning they are profitable in the trade. All the people that bought at ten and watched it trade down to 4 and told themselves if they would get out if they could just break even they would sell. Well all of those people got their wish and got out. So basically there is not that much supply to work through and the next resistance level is from 10 years ago at 29.44 and most likely they sold at the bottom when the stock plummeted to $0.55 a share.
The recent breakout was also on very strong volume, you can see the solid green bars at the far right bottom corner of the above chart. As I write this blog post IMAX just beat on all fronts of there earnings release and is trading higher. When I first came in this morning I was tempted to just buy the stock, but then I would be violating the rules in my options account. It was at $16 when I first sat down at my desk and is now at 17.66, but that is okay because I think buying will beget more buying in this name. I think this stock has a lot of pent up energy/demand. I would not be suprised if this stock traded up to test its all time highs at 29.44 in the next 3 months.
More often than not once a stock catches a bid it is game over. "To the moon Alice"
I am not sure I will play it or not but I will for sure watch. But to make it interesting and to keep my interest I may have to buy just a few contracts. I really think this one has legs.
So I went ahead and sold 3 17.50 puts on IMAX for next week expiration. I collected $0.95 per contract. So I can make $285, I will stop out on a move below 16.50.
ReplyDeleteThis puts my risk at about $85 or a 1:3.3 risk vs reward.
I was stopped out. I was way to early, but I still think this one goes higher.
ReplyDeleteI have to be careful with trades I put on that have the potential to stop out the same day because then I will have to deal with the pattern day trader issue again.