As I pointed out in the previous post small-caps are outperforming large-caps. It is also true that mega-caps are underperforming large caps. To trade the pullback you don’t want to pick a strong stock which only slightly moves lower but you want to trade a weak one. The best thing to do in this case is to pick a mega-cap stock which underperforms mega-caps, DIA. I picked Chevron, CVX for this reason. Chevron trades with S&P 500 or DIA as you can see it on the chart and underperforms it as you can see below the chart. To take advantage of the short term downtrend I entered a trade on September 23 with a bearish CVX Nov 120/125 put spread for $1.90. This spread trades for $3.05 today which is a 60% increase. The breakeven point for this trade is 125-1.90 = 123.10. CVX is currently trading at $120.83. The reason I bought a spread instead of a simple put is to better control the breakeven point, the “risk”. CVX hasn’t reached my downside target so I expect more profit from this trade before closing the position.
1 Comment
12/15/2013 06:02:14 pm
Patience makes perfect in trading, and without having it you Would crash. If you do not possess patience, this may not be the job for you. You have got to build a long-term approach and be able to abide by it all the way through till the end.
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