NVDA Exit

NVDA position self-liquidated today when it rose above Friday's high. The hedge I described in the previous post did increase in value but much less than I expected. I paid $14 and sold for $26, while the Jun 170 Put cost $8.00 and sold for $6.28.

Normally I'd hold the position until a close above the 8ema and follow through the next day. But this was a somewhat risky trade and the Put will lose value quickly. I thought it better to get out and watch it rather than hold on.

NVDA Bearish Trade With A Weekend Hedge

NVDA gapped down today on increasing volume, after past 3 days formed a lower high, an Evening Star candle pattern, and closed yesterday below the 8ema. Also the ADX crossed decidedly bearish, which adds a little confidence. Stochastics still have room to go before getting oversold below 20%.

I got Jun 21st 170 Puts for $6.92 at 9:32am EDT.

A 50% Fibonacci retracement (yellow on the chart) just under the 50 SMA is a reasonable target. Expect we may get some support from the 50 SMA, today is Friday in a news headline risk environment, and the options are costly, so I'm concerned about the 50 SMA being the bottom of this pull back. I want a hedge against a gap fill on Monday.

So here's what I came up with for a hedge. At 1:37pm I sold an option Risk Reversal as follows:

I shorted a May 3rd 160 Put for $.39. It has a Delta of 6.5%. The Jun 170 Put has a Delta of 37%. So the May 3rd 160 Put won't hurt my profitability much if NVDA gaps down to my target.

I used the $.39 to finance the purchase of a May 3rd 190 Call which costs $.53. It has a 10% Delta and a 1.8 Gamma. The short term expiration gives a high Gamma, so if NVDA goes against me the Delta will increase quickly. It won't protect 100% of the losses from the Jun Put with a 37% Delta, but it will provide some protection. And it only costs .53 - .39 = $14 per Risk Reversal. My total risk on the Risk Reversal is the $14 cost. I don't have to worry about assignment of the short 160 Puts because I can exercise the long 170 June Puts.

If NVDA goes higher than today's high, then I'll exit everything.

If it hits the target, then I'll exit everything.

If it goes sideways then I'll hold the hedge and figure out what to do next Friday when the hedge expires.

I haven't taken a hedge like this before, so if I missed some aspect please leave a comment.

IYR Starting Bearish Leg Exit

With only 15 minutes to the close, it looks like we're going to close over the 8ema. However, we don't have a candle buy signal. So there's chance it'll go back down before the end of the week. But I'm going to get out here where I can break even and get back in later if we go back down.

It's just one of those trades where you do everything like you're supposed to but it just doesn't work out. You have to accept not every valid pattern will work out in your favor. That's one reason position size and risk management are very important.

IYR Starting Bearish Leg Update 3

We took a little heat today but it did not make a candle buy pattern and did not close over the 8ema. Also, notice the volume for the past 5 days. Notice the red candles have significant more volume than the green candles.

So, held the position. See where we go tomorrow.

IYR Starting Bearish Leg Update 2

IYR performing well. Stochastics are low and still close to the 50 DMA, so might go a little sideways, but that's not a reason to get out yet. Also notice the Bollinger Bands are blossoming out. In my experience, that's an indication of further movement in the same direction. We're also forming a doji sandwich, which also indicates further movement in the same direction. 

Sticking with it for now.

IYR Starting Bearish Leg Update 1

We're getting some support at the 50 SMA, but that would be expected. If we continue to bounce early next week, we have the 8ema and the 20 SMA to provide resistance. They also line up with the lower trend line I drew, but I don't have much confidence in that TL until it proves itself in battle. It may just be a figment of my imagination. My expectation is to go up a little further and test those moving averages, then continue back down. If we close above them I may have to bail out of the trade.

If we just continue down that would be great. If we chop a little sideways along the 50 SMA, we'll just have to watch and see what happens.

Meanwhile, the IYR Jun 85 Puts are doing fine, thank you very much.

IYR Starting Bearish Leg

I saw IYR mentioned on CNBC Fast Money or Options Action a few days ago. It looked too strong to short, but I set an alert if it fell below recent lows. It triggered today 4/16/2019.

Yesterday it made a Dark Cloud candlestick pattern on high stochastics. Today, on decent volume, it broke through the trend line, plus a parallel trend line off the 3/20/2019 low. Also, the ADX crossed to the downside, which is not a very reliable indicator, but it adds evidence we're going bearish.

Normally I'd wait until near the end of trading to make sure the move hasn't reversed, but it looks like a strong enough move, I'm going to add a little risk and get in mid-day. If it reverses above the 8 ema at the close I can get back out and wait until tomorrow.

I set the target to the 50% Fib but I was worried about the 200 dma being just above it, which might act as support and end the down leg. So I checked how IYR respected the 200dma in the past. Here's a wider few.

Notice how IYR sliced right through the 50 dma and 200 dma between Oct 2018 - Feb 2019. Seeing this gave me confidence to set the target at the 50% Fib rather than the more conservative 200 dma.

My stop loss is just above the recent highs at 88.25.

I got some Jun 85 Puts for $1.42 at 11:36am EDT.