Stocks came into the trading day staring at all-time highs (S&P 500). That said, I did read something interesting this morning – that only 13 of the 500 S&P 500 stocks are at their highs.
I’ll let the talking heads on TV try to figure out what that means…
As for me, I’m going on vacation for the rest of the week, taking the family to Atlantis aka “Paradise Island” in the Bahamas.
I’ll have my laptop and phone on me, but trading will be light, to say the least. However, I’m leaving on a high note. If you recall, I mentioned that I was watching ROKU in the Jump on the Week a couple of weeks ago…
Well, I finally jumped on the stock options Monday, after I recognized a “curl” happening on the hourly charts, and the fact the stock was stabilizing after a significant drop from earlier in the month gave me further confirmation that this is a buy.
Money Pattern Strikes Again
(I bought May 3 2019 57 calls in ROKU on Monday, using my money pattern)
That said, with earnings on May 8th in the stock, I was planning to be in this trade for just a short time…
….but I wasn’t expecting to be taking profits 100% overnight!
(One of my trading rules is taking half off once I reach 100% returns on a trade, if you’re ready to get my alerts in real-time, here you go)
And you know what?
This thing kept running…
(Tired of seeing these trades after-the-fact? Receive my alerts in real-time and get in on this action)
Now, before I get into a trade, I’m looking at several variables… some technical…some fundamental. However, I rely on the “charts” for my entries, exits, and overall execution.
That said, I’d like to share with you what I saw on the chart in ROKU and how you can use my money pattern to profit in the future. Continue reading to learn about my thought process…
Now, if you don’t already know about the money pattern, it’s a cross over pattern. In other words, I’m able to spot shifts in trends – and figure out whether I should buy call options or put options. Basically, I use moving averages on a specified timeframe and just look for one line to cross over another.
Let me explain the pattern a bit more with a chart on Roku (ROKU).
Check out the hourly chart on ROKU above. The stock just had a big drop in just a few weeks… but I wasn’t going to try to catch a falling knife (trying to pick a bottom). You see, a lot of traders will just buy a stock that’s falling and say, “It’s down too much… this isn’t right, I have to start buying.”
Now, traders who do that end up taking large losses.
And there’s a better approach to that – the money pattern.
You see, all you really need to do is look at the blue and red line on the charts. When the blue line crosses above the red line, it indicates there should be bullish activity soon. Generally, I keep a basket of stocks to look at when I’m trading… stocks that I like to trade… stocks that I know. Well, ROKU happens to be one of my favorite stocks… and I’ve had a lot of success trading this name in the past.
Money Pattern Flashes Buy in ROKU
So when I saw this money pattern flash a buy signal, I quickly came up with a plan. I figured ROKU may have found a short-term bottom around $55 (the blue horizontal line in the chart from earlier) – that’s what we call a support level. In other words, traders were willing to buy at the blue horizontal line.
That said, if ROKU broke below the $55 level, I would sell my call options.
Additionally, I had a target in mind.
Now, I also planned to buy more call options if the premiums came in a bit, just as long as the stock stayed above $55.
On the hourly chart, I liked how ROKU has been very quiet and trading in range following its big drop earlier this month. Again, I also liked how the blue line (13-hourly simple moving average (SMA)) crossed above the red line (30-hourly SMA).
Here’s what I was thinking.
I would start taking profits if the stock got to $61… and I would buy more if the options premium pulled into the mid-$1 range… and if the stock broke below $55, I would sell my options.
That said, I bought ROKU May 3 2019 57.0 calls at $2.15 yesterday afternoon. Keep in mind, ROKU is set to report on May 8, and I wasn’t planning on playing the stock for earnings… it’s too volatile for my liking. That’s why I bought the options contracts expiring a few days before the announcement – that also helped reduce the cost of the options since I wouldn’t be paying a volatility premium. Now, if you need a refresher on options trading, check out my free guide here.
Always Take Profits at 100%
Now, the very next day… ROKU gapped higher… and moved 7% – after Susquehanna initiated coverage on ROKU with a price target of $80.
If you don’t already know, options provide you with leverage… and a small move in the underlying stock could cause the options to move exponentially. Now, if you need a refresher on trading stock options, check out my free guide: 30 Days to Option Trading.
When you’re up 100% in an options position… there’s one thing you need to do… sell a portion of the position. Now, my rule is to sell half of the position for 100%… and let the rest ride just as long as the trend stays intact.
You see, when you sell half at 100% and let the rest ride… and worst case scenario… you would just scratch on the trade. However, best case scenario you can generate profits like these…
That said, if you’d like to keep up with these lessons, bookmark and share this page for future reference.