HCA is extended to the upside...whats my trade?

As I suggested in the title of this post, HCA from a technical vantage is looking very extended to the upside. Upside price movement has gone parabolic. The RSI is showing a reading of >80 and we are trading at the upper bollinger bands. So based on the chart I want to be short this name for a corrective move.

But I also want to be long the stock, I just don't feel comfortable getting long at current prices. We have decisively broken out above resistance around $34/share. And as the rule goes, what was once resistance becomes support (Around $34/share).

So I put on the following position:

Risk Profile for Aggregated Position

Part #1: Sold 1 Mar '13 $38.50/$40.50 callspread @ 51 cents

Part #2: Bought 2 Mar '13 $37.50/$36.50 putspreads @ 50 cents

Part #3: Sold 1 Mar '13 $36.50 put @$1.45

Overall I collected a net credit of 96 cents or $96.

Upside Breakeven: $39.46
Upside max loss: $104

Downside Break even: $33.54
Downside max loss: Infinite (stock could go to zero)

Max Gain: ~$300 @ $36.50 stock price

A few things to take note of from the risk profile I pasted in above. First the probability of the stock finishing above my upside breakeven of $39.46 by March expiration week is 35.49% chance, meaning there is a 64.51% probability that it will finish below my upside breakeven (I like those odds). Secondly, the probability of HCA finishing below my downside breakeven of $33.54 is 16.22%...meaning that there is an 84% chance of it

At the end of the day. If I am wrong to the upside then my max loss is $104. Anything between $33.54-$39.46 I can make $0 to $300. And anything below $33.54 gets me long the stock at $33.54, which I would be more than happy with as well. That would give me an entry of $4.46/share lower than where HCA finished today.

Lots of options and ways to play out this position. Now we just need to see what happens over time.

Tasty Trade - Free Option Trading Education

How many of you like FREE stuff?

Ok. Stupid question. How many of you like quality free stuff? If you are on this site, you are likely trying to make money trading options...and maybe other trading vehichles as well.

So Tasty Trade could put you back $90/month if you didn't know any better. But we would not let you do that on our watch. The first thing you need to know is that if you use the Think or Swim platform to trade then its free. Oh, by the way, Think or Swim from TD Ameritrade is not only the most sophisticated platform out there but its FREE also.

Now that you have this information, what are you going to do with it?

1) Go open up an account with TD Ameritrade and download the Think or Swim Platform.

2) Then once you account is set up and funded you are going to send an email to tastysupport@tdameritrade.com to get your free account at tasty trade setup.

Once you get your tastytrade.com account, you need to start tuning in and learning.

Don't forget to contact support and ask them to lower your commission rate. Just tell them you want them to match interactive brokers option rates. They may give you a spill...blah, blah, blah. At first they will likely offer you a $1.25/contract commission rate for options and a penny per share for stock. That is a good deal to start, and as your volume picks up you can go back to the table.

For full disclosure Jason, Sandeep, and myself pay $0.75/contract for options and a penny per share for stock trades. Its a great rate, especially when you keep your trades small. Which is really the way we recommend you trade.

Let us know if you open an account with TD Ameritrade and get the TastyTrade.com account. We have been on the trading platform for a while and can help if you need any navigating the platform. But you will also learn a lot of that from the show.

Good Luck Trading!

P.S. If you are just begining you should tune into the new series on tastytrade.com called "Where Do I Start?

Tom Sosnoff, the co-founder of ThinkorSwim and founder of TastyTrade.com is teaching his daughter from the ground up how to trade the financial markets and make money.

Short Call spread in SPY

This morning I put on a short 150/160 call spread on SPY. We are approaching the highs from September of 2012 and I am not so sure we will be able to breakout to new highs. One thing I would like to point out is the fact that I went all the way to December expiration for this trade. I collected $4.06 for the trade. There are two reasons I did this. These days balancing trading with all my other ventures I don't want to feel compelled to be glued to the trading screen. When I first started I felt like I had to watch every tick in the market. Now I have periods of super active trading, but for the most part I pick trades I really like and can set and forget.

And it doesn't matter whether I check daily, weekly, or every few weeks. Of course I can set alerts to let me know if I need to check in.

The second reason is I have a few long covered call positions that would benefit on the market going up. But I just want a little more downside protection in the event the market does indeed have a pull back from these highs.

I even acknowledge the fact that at some point this year the SPY could be testing 2008 highs near $157. But in reality I doubt we finish the years at the highs.

At the end of the day I like the risk/reward of this trade in respect to the other positions that I currently have on.

Time to set it and forget it!

Good Luck Trading!

How to start trading online

Trading with Chris & Mike #1

Good morning and welcome to a new blog educational series that I will be hosting weekly. I have a few friends that want to learn how to trade and invest online. I will be meeting with them in person and turning our lessons into blog posts. Our first lesson was last Friday and the objective was to cover the basic steps of how to start trading and investing online.

Critical First Steps:

1. Put together the funds that you will use to open the account. I recommend $2,000 to start. But if you can't start with $2,000, then as much as you can put together. The reason I recommend $2,000 is because it gives you a lot more flexibility with the types of trades you can make.
2. Choose an online broker. There are a lot to choose from, but if you need help selecting, please reach out to us. We have our favorite platform.
3. Negotiate the commission rate. Most people don't even know that they can ask for a lower commission rate with out any minimum commission rate. If you need help with this, reach out to me (at dominicdibernardo@gmail.com) and I will help.
4. Explore the platform of which ever broker you decide to sign up for.
5. Find Education. It could be from a mentor in person, online trading blog (wink, wink), a trading book. 

I sent Chris & Mike home over the weekend with homework to get some funds together and start the application process online to open an account. Once they have their accounts open, I am going to guide them in negotiating a sweet commission rate. The last thing you need is outrageous commission rates eating into your capital. THE SMALLER THE BETTER!

This week we are going to go into some basic trading terminology...Trading Lingo 101!

Here are some of the questions we will answer this week:

• What is a stock?
• What is the difference between being long or short a stock?
• How does shorting work? How do you sell something you don't own?
• What is a margin account? Why does it matter?
• What is the difference between trading and investing?
• What is a call option?
• What is a put option?
• I thought options were really risky...even more risky than stock?
• How do I choose what to trade and invest in?

Stay tuned for a follow up post with answers to these basic questions next week.

Good Luck Trading!

High Yield Trade in PBI

Just as it has been a long time since I have posted on this blog, it has been equally as long since I last posted about any trade ideas. 

BTW, you have by now seen some visual changes to the blog. We are still detailing and finalizing the changes for the "Official" re-launch.

One of the strategies that I have utilized over the course of the last year in my IRA account is high yield covered call position. Some of the stocks that this has worked out well with are VALE, NLY, and now PBI.

I use a pre-defined scan that I have set up within the TOS platform to look for stocks that have had recent sell offs and made for very attractive dividend yields. Then I do the following due diligence:

1) Research the regularity of the dividend. You can easily check history from the company's website. Most of the time you can even see them within the TOS platform. Checking the company website for PBI I confirmed that it has had 30 years worth of consistent and increasing dividend payments.

2) Make sure that there were no recent large one time payments to investors that might be inflating the dividend. 

PBI made the cut: 12.5% dividend rate

3) Then I check for any announcements that may be responsible for a sell off.

4) The first 3 steps cut a lot of the results as possible candidates. In step 4 I look at the charts to get the technical perspective and look for a good price entry. I also add notes as you can see in the above chart of the last 4 dividend payments.

5) The last step is to look at the option string to find a call option to sell against the stock in a covered call trade. Usually opting to sell a call at the money or 1 strike out of the money. Additionally I try to grab a call that is 1 year out from expiration.

When I initiate this position last week I was able to sell the Jan '14 $12 call for $0.80/share. I picked up the shares for $11.79. So the short call got me 6.8% on top of a 12.5% dividend yield. Additionally I have $0.21/share of upside potential or 1.8%. So my max gain on this position is about 21% for 1 year. On top of that I have some really nice downside protection with the dividend and call premium while I hold the position.

This is my version of buy and hold.

Good Luck Trading!

Site Re-Launch & Revitalization Coming Soon!

 

Hello and welcome to 2013!

It has been a long...long....long time since I have last posted to the blog.

Jason and I started this blog back in May of 2009 as a place to share our trade ideas and market analysis. Eventually it grew to a few other contributors and developing traders posting off and on over the past few years. A big part of the time of no activity from me was due to the fact that I was trading professionally for an oil company for about 2 years, and I really could not post about the proprietary trades I was making in house. My focus internally led to way less trading activity in my personal account. I have since moved on to new endeavors and am ready to re-launch and revitalize this trading blog and community. I have a vision of what I want this site to become for myself and the rest of the community. Be patient, and over the next several weeks and months you will see this community come alive.

Stay Tuned!

 Dominic

AAPL Iron Condor

http://screencast.com/t/oQqSvNeD