XLV Looking Healthy

I'll explain why I'm bullish, but first let me tell you how I acted on it. I got some June 76 Calls for $.95 each when XLV was $75.36. Target is the 127.2% Fib at 78.84 but I entered my conditional sell order at 78.80 to be a little conservative. This option currently has a Delta of about 43% and Gamma of .13. That will rise as the underlying rises about $.13 for every dollar move of the underlying. So at the target the Delta should be about 78.84-75.36=3 x .13=.39 + .43 = .82. If we average the Delta's that's (43%+82%)/2 = 62.5%. So the value of the option is roughly ($3 x 62.5%) +  .95 = $2.83. That gives us a Risk:Reward of .95/2.83 = approximately 1:3.

Here's what I see that makes me bullish:

Jhook: strong move from 1/31/17 to 3/15/17 followed by profit taking and now a resurgence.

Double Doji Kicker: 3 days ago we had a down candle then a gap up to a doji and another gap up to a doji and today looks like a green candle, but the day is not over. I really should have waited until we were close to the close. If we close with a nice green bar then we have the pattern we want. Otherwise I may exit back out.

Close above all Moving Averages: Yesterday's close was above all the moving averages I have on the chart and today gapped up again and is moving higher.

The Bollinger Bands are breaking out of the Keltner Channel to the upside. This often means a strong continuation pattern will follow.

The Ichimoku Kinko Hyo (I nicknamed it Ichi) chart looks great. Price is breaking out of the cloud and the trailing line is breaking through price. Here's the Ichi chart:

Of course news could derail this whole trade and I'll have to exit, but I limited my risk to the cost of the options and I took a position less than 2% of my account.

(All my chart indicators are defined in "My standard chart indicators" posted 4/8/2015)

XHB Hedged Bear Trade Exit

We haven't hit my stop or even broken the trend line, but 4/5/17 & 4/6/17 form a Bullish Harami then 4/6/17 - 4/10/17 form a Doji Sandwich, both are bullish. Plus we have a close above the 8ema yesterday which is a change of trend indication. Today we seem to be moving higher which could be confirmation if we close positive.

So, while we could wait for a close above the trend line, I'm going to be conservative and exit here today with a small loss.

Results:
Shorted XHB 36.82, covered 37.07.
Bought XHB May 38 Calls for .36, sold for .36.

Goal is small losses and larger gains.

(All my chart indicators are defined in "My standard chart indicators" posted 4/8/2015)

XHB Hedged Bear Trade Update 1

Almost 10:30am 4/6/17 seeing a green candle forming a Bullish Harami candle pattern. This could lead to the formation of a wedge. If it does I'll need to close the trade because I didn't enter the trade for a wedge.

Currently still under the 8ema. I'll give it to the end of the day and see how it looks.

XHB Hedged Bear Trade

Notice the lower high on 4/3/17 (yesterday) and a gap down today. Yesterday also was a bearish engulfing candle and a close below the 8ema. These are bearish signs.

I expect the 2 most likely moves from here are either the formation of a wedge, which is not my preference, or a continued drop to the trend line I drew, which coincides with the 50SMA and the 50% Fib. The latter would form a down channel, and this possibility is what I'll trade on.

Where would I be wrong? If price exceeds the previous swing high of yesterday at  37.41. So I put my stop at 37.50. Also, in case of a crazy gap up move, a stop won't help me. So I got May 38 Call options for $.36 and shorted XHB shares at $36.82 in equal proportions to the number of shares represented by the options (100 shares per option). I set my target just above the 50% Fib at $36.04.

So, worst case win is 36.82-36.04 =$.78-.36(option)=$.42/share. But the option will probably not be worthless, so I'll make more.

If the trade stops out, then the loss is 36.82-37.50=.68 but the option will gain .68x30%=.20 because the option has a 30% Delta. So the loss is .68-.20=.48 per share. But the Delta will increase due to Gamma so I'll lose a little less.

This is pretty close to a 1:1 risk:reward. Not desirable but I think the probabilities of a stop out is much less than a down channel forming, so I'll put the trade on for a 1:1 risk:reward because I think I have an edge, at least until the 50% Fib is hit.

Worst case loss is if there's a huge pop and price goes over $38. In that case my loss is capped by the 38 Call option to 36.82-38.00-.36(option cost)=$1.54 per share. Not good, but it is defined and I will use this when calculating the size of my position to no more than 2% of my account.

OK, let's see what happens.