Tuesday, June 15, 2010
Trade idea for MCD
Just a technical play and feeling like the top is in for the markets. I would like to use this bounce to get some short exposure. I'm going to sell the July 72.50/75.00 call spread for .50, its bid at .43 so I'm going to put the order in and hope to get filled if we continue higher Wednesday morning. I arguable should wait until we touch up against the resistance line but I'm willing to put it on now because I would exit the trade with a close above the 52-week high at roughly $72. The loss at that point, assuming we hit that a few days from now is roughly $270. If we sell off I might sell a 65/60 put spread, or just book profits from the call spread sale and be done with it. This will be my first trade where I'm implementing size. For spreads and similar type positions with a known max risk, I'm going to start small and use a 1% of trading capital per trade as my risk threshold. I'm going to earmark $200,000 for trading capital so roughly $2000 per trade.
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I like the idea of this trade. But I have to agree with you that it waiting till we get to the resistance line would give you a more favorable fill in the amount of premium you would recieve. Looking at the probability of the 72.50 expiring in the money it only has a 24% probability of finishing ITM by expiration and a 51% chance of touching 72.5.
ReplyDeleteI also think that 1% makes a lot of sense for your capital base. That is eventually where I would like to get once I build my capital to a certian level.