NKE Just Trade It

[ This post includes a valuable personal options trading technique]

Today is 5/30/21. On Thu 5/27/21, near the market close, I noticed a strong bullish setup on NKE. What was bullish was:

• Trend Kicker candlestick pattern
• on higher than usual volume
• Gartley pattern
• Close above the 8ema
• Close above all MA's
• Breakout through the downward Trend Line
• Retest of the Trend Line
• Close above the Trend Line
• Stochastics not overbought

I used an options trick I figured out years ago, although I'm sure I'm not the first. The genesis was I wanted to short option Theta time decay, but I don't like shorting option vertical spreads because you must risk substantially more than your possible reward. So, after musing about it for a while, I came up with an idea to short Theta by going long an option vertical spread (hereinafter just "spread"). This may sound crazy at first but I've done it many times and it works.

Think about this. A spread that is fully In-The-Money (ITM) before expiration is not valued at the full spread width because there is still premium (extrinsic value) in the options. But the spread will reach its full value of the spread width at expiration because there is no more premium at expiration. That means an ITM spread will increase in value from a time before expiration to the time of expiration.

Now, add to this, you want the Theta time decay to be at the greatest rate (fastest) possible. The closer to expiration you get, the faster the decay. 

So, putting this all together, what you can do is buy an ITM spread, or near ITM, that you believe will be ITM at expiration, and buy it the day before, or day of, expiration. Then watch the spread magically increase in value to the width of the spread. I've done this many times and it works, assuming you were right about the spread being ITM.

Here is what I did for this Nike trade. I noticed a strong bullish pattern on a Thursday 5/27/21. At 15:56 ET, 4 minutes before the market close, I bought a NKE May 28th 135/137 Call Spread for 1.36. NKE stock was 136.75 at the time. Only 25 cents shy of fully ITM. Since the bullish setup was strong, I was confident the spread would expire ITM the next day.

On Friday 5/28/21 NKE opened and continued north. I was feeling pretty good about this trade. But then, it turned around and started heading down. I expected it to bounce off the TL and continue back  upward, which is actually a very bullish pattern. However, the spread is expiring today and we may not get a bounce today. So, I figured the best thing is to capture what profits were available before I'm in one of those situations where you're right but lose money.

So I sold the spread for 1.86, capturing a profit of 186-136=$50 per spread. What happened here was that I profited from Theta time decay by going long a spread rather than shorting a spread.

What Now?

OK, so that was Friday. Now I have no position but I still believe if we make a new high then Nike is going significantly higher. 

I entered today (Sunday 5/30/21) a conditional order to go long if we exceed the previous swing high at 138.31:

Buy Good-Til-Cancel Jun 18th monthly 140/145 Call Vertical Spread at the Bid/Ask midpoint if NKE >= 138.50.

For a target, notice the D point of the AB=CD is 145.62, and the 1.618% Fibonacci Extension of the Gartley (setup between  labeled points A and C where A is a Gartley X and C is a Gartley D) is 147.82. Gartley type pattern is also known as XABCD. Given these likely objectives, I picked a conservative target of 145.

The maximum risk is the cost of the option, which I estimate at $220 by using a 135/140 spread as a proxy.

If we assume we'll hit our target near expiration, then the reward will be approximately the $5 wide spread width. It'll more likely be something less, so let's say $4.80.

R:R = 480/220 =  2:1, very nice.

TXN Long Horns - Update 2

Past 3 days were all Doji candles, which isn't very bullish, but each one opened higher, closed higher, had higher highs, and higher lows, which is bullish. Also notice the Bollinger Bands are blossoming, which suggests continued movement to the upside. And we're still closing above the 3ema.

Stochastics are very overbought but don't see a good reason to exit yet. So, steady as she goes.

TXN Long Horns - Update 1

We could have closed with a more bullish chart, but certainly not ready to bail on this trade yet. We closed with a Doji candle which represents indecision. But we closed right on the 3ema, which shows continued strength.

However, we closed with a lower low and a lower close than yesterday. We also have very overbought Stochastics (14,3,3 K%=88). These hint at possible weakness on the way.

A common possibility from here is a roll over down to the Trend Line we broke out of, for a re-test of the TL as support. If that happens and we bounce off the TL and climb from there, that's actually a very strong bullish pattern. However, we could crash back down through the TL and keep going. So, if we close below the 8ema, and there's significantly more distance to the TL, we'd probably want to exit, take a small loss, and wait to see if we bounce and close back over the 8ema. At which point we can re-enter a long position.

For now, we held our long position.

TXN Long Horns

Notes on the Texas Instruments daily chart above are self-explanatory. "TL B/O" means Trend Line Breakout.

Got a June 190/195 Call spread for $1.97.

Stop: 174.

Target: 207.

Risk: 197

Reward: 495-197=303

R:R 303/197 = 1.5:1

Possible Apple Drop - Exit

Sent the following Tweet 9:42am ET:

"Apple #AAPL gapped up and breaking to the upside. Exited our short position with a small profit. Details later."

We opened this morning with gap up right on the resistance level, and started climbing. Today is Thursday, and Thursdays have been trending days for the past few weeks. Experts who follow the Federal Reserve believe they are behind Fed Juice Thursdays.

Everything was just a little too Bullish to stay in this trade. We gave it a chance overnight to reverse back down but Apple preferred to bob on up instead. So I sold the June 125 Put at 9:41am ET for 3.25.

Summary:

Entry: 2.87 5/14/21

Exit: 3.25 5/20/21

Net profit (other than commissions) 325 - 287 = +$38.00 per contract.

July Corn Not Quite Cooked - Post Exit Update 2

The July corn short was working so well, with a continuation towards the 50% Fib target, we added another contract. The downward price action continued even further to the point where it seemed very unlikely price would reverse all the way back up to the break even point. So we moved the Stop down to break even. We had $100's of value in our combined position and certainly no reason to capture it prematurely. 

Then at about 12:00pm ET corn reversed its trend and started popping to the upside. Sadly it hit our Stop and we're out flat. The trade was working perfectly and there was no reason to exit the trade before price hit our target at the 50% Fib. 

Well, it would have been worse if we didn't move our Stop down to break even, but its quite frustrating.

Possible Apple Drop - Update 3

Interesting day. We gapped down at the open right at the bottom of the open gap 124.26 - 123.06. That was great, but we spent the day filling in the original gap, then also filled in the rest of the gap we formed  at today's open. In so doing, we watched about $100 of value in our Put option dissipate.

Looking at it on the hourly chart above we see we formed a flag. I was very tempted to take the $150 profit that was left in the trade at the end of the day. But, even though we closed over the 8ema, we're still under the downward angled Trend Line, under the 200sma, 50sma, and 20sma. Since we filled the gaps and we're close to resistance, there's a good probability we'll resume the down trend tomorrow.

However, the past few Thursdays have had strong bullish moves. We could break out to the upside and just keep going. And the bottom of the channel could certainly provide support.

We could also bobble around between the 8ema, upward Trend Line, and the top of the gap providing support, and the downward Trend Line, 50sma, and 20sma overhead providing resistance, until we break out one way or the other.

It was a difficult choice, but we stayed in the position. We'll see what happens tomorrow.

Possible Apple Drop - Update 2

On the 60 minute chart above you can see we got a lower swing high followed by a lower low on significant relative volume. We also bounced off the upper Trend Line and accelerating into the downward channel. We closed under the 8ema and all the moving averages on the chart. Notice how the Bollinger Bands are blossoming outward. That's an indication of continued momentum in the current direction.

All of this is constructive for our short position. If we continue this trend, we'll be well into, or beyond, the open gap 124.26 - 123.06 just below us. At the moment, we're on target and looking good.

July Corn Not Quite Cooked - Post Exit Update 1

The charts above are both 4 hour July Corn Futures charts. The lower one zooms in to better see today's candle.

I sent a Tweet out 9:27am ET this morning regarding a possible re-entry into this short trade. This is the 3rd post in this thread. At the very end of the corn market trading day, you can see a Bearish Engulfing pattern, and a close slightly below the 8ema. These are bearish indications.

However, we closed above the Trend Line and stochastics are mid range. Plus it looks possible today's price action was just to fill in the opening gap, and not a resumption of the downward trend.

Bottom line, at 14:19:15, 45 seconds before the market close, we re-entered this trade to the short side. We had to adjust the Stop to be over new swing high at 669 1/2.

The renewed YC trade:

Entry 658 3/4

Stop 670

Target 627

July Corn Not Quite Cooked - Exit

Well, the best thing I can say about this trade is it was quick. Rose up after hours beginning 20:00 ET and hit the Stop at 21:50. It is amazing how often overnight price action does the opposite of what the day session leads you to believe. This is not good for my paranoia.

Entry 652 1/8

Exit 664 1/4

-12 1/8 = -12.125 * $10/pt = -$121.25 loss.

July Corn Not Quite Cooked

Top chart is the July corn futures 4 hour chart showing the whole Fibonacci range we're working with. The scrunched up notes to the left are from a different trade on a Gartley pattern. The next chart is the same chart zoomed in for a better view.

This trade is a continuation trade based on the assumption the 50% Fib is going to be hit. It looks like we're forming a Bearish Flag that is about due to break to the downside. It seems more likely this retracement will hit the 50% level than not. So this bearish price action is not quite cooked.

Here's what I see:

• Double Top
• Hasn't yet hit the 50% Fibonacci level
• Flag similar to previous 2 flags in time and size
• 8ema resistance (closed right on it)
• Trend Line resistance
• Stochastics lifted above the overbought condition

Because we already have what could be considered 3 drives down (kind of looks like an Elliot Wave but I'm not very knowledgeable on those), its reasonable to anticipate a significant move to the upside. That makes this a possible higher risk trade. So, I want to use the YC mini-sized Corn contract ($10/pt) rather than the ZC full-sized contract ($50/pt).

The Target is the  50% Fib, which coincides with the 200sma at 626 3/4. We're setting the actual target to 627 to account for the Bid/Ask spread and slippage.

Setting the Stop to 664, which is just a little longer than the length of the longest leg in this down move. The longest leg is 732 1/2 - 703 1/4 = 29 1/4. Add that to our swing low 29 1/4 + 633 = 662 1/4.

We sold a July YC futures for 652 1/8 at 14:18 ET, 2 minutes before the market close.

Summary:

Entry 652 1/8

Stop 664

Target 627

Reward 652 1/8 - 627 = 25 1/8

Risk 664 - 652 1/8 = 11 7/8

R:R = 25.125/11.875 = 2:1

We don't have anymore significant crop reports for the rest of the month.

Possible Apple Drop - Update 1

We got the drop we expected, but it was quite shallow. And worse, the hourly chart above closed over the 8ema and the ADX crossed to the upside.

On the other hand, we're still under the 50sma, under the Trend Line, stochastics aren't oversold, the 124.26-123.06 gap hasn't been filled, and the up bar was the last hour of the day, which could have been short day traders taking their profit.

Its not the best looking chart to be in a short trade, but its too early to abandon the position.

Possible Apple Drop

AAPL has reached an area where there's a confluence of possible sources of resistance on the hourly chart. Price could easily blow right through this level, come back down and retest it, then take off to the upside. But there are so many independent sources of resistance, you got to make some attempt to trade it.

Because AAPL could ignore the resistance levels or react to news over the weekend (today is Friday), we want to just tip toe in with a small position, just in case we get a nice gap down with continuation on Monday. If price makes a nice sustained move in our favor then we can scale in for a bigger position.

The top chart above is the 60 minute chart, where we see the confluence of resistance. The next chart is a blow up of the 60 minute chart showing the area around the closing price. You can see the 2 Fibonacci retracements, the Trend Line, the D point of the AB=CD, and the 50sma just under the closing price.

Here are the different sources of potential resistance:

• Trend Line Resistance
• 61.8% Resistance green range
• 38.2% Resistance yellow range
• AB=CD D point Resistance
• Extreme overbought Stochastics
• Possible 50sma Resistance
• Possible Resistance from previous support
• Possible attraction to an unfilled gap

Very close to today's close, we got a June 125 Put for $2.87. The stock was 127.62 at the time.

The Target is where the -27.2% green Fibonacci Extension level meets the lower Trend Line at about 119.79.

Max risk is the cost of the option, $287. The option had a Delta of 40% and a Gamma of .04. So the Delta at the target would be approximately .40 + .04 * (127.62 - 119.79) = .71. For purposes of estimating the option value at the target, not considering the Theta loss, we'll just use the average Delta from entry to the target, which would be (40% + 71%) / 2 = 56%.

Using the average Delta, the reward at the target would be .56 * (127.62 - 119.79) * 100 shares = $438.

Now we can calculate the Reward:Risk ratio: 438/287 = 1.5:1, not great but acceptable.

TSLA Daily Bullish Gartley - Exit

First I sent this Tweet:

Then this one:

Then price dropped some more and I bailed. The whole equity market was/is due for a significant correction, and the routine incursions of China's military planes into Taiwan's airspace was being used as an excuse. But who knows, it could be a serious issue that the big boys have inside information about. Either way, there's no telling how bad this sell off might be. Selling on a new low was the right call.

By the end of the day the chart looked like this:

By the market close, price had reversed back up to a much more advantageous level from which to exit. Very frustrating. But had we waited until the end of the day, price could have dropped so far down as to become worthless until expiration. 

Holding until the end of the day is often a good move, and I've done it many times. I'm sure there are blog posts here where I did just that. But today was different in that there was a worry about war breaking out when the equity markets are in a huge bubble. The prudent thing to do was give the position a chance to recover but exit on any weakness, while we still could. Which is exactly what we did.

Anyway, here's the damage:

TSLA May 7th 720/725 Call Spread: .47 - 2.00 = -$153.

TSLA May 7th 730/735 Call Spread: .31 - 1.68 = -$137.

Net loss -$290.

TSLA Daily Bullish Gartley - Update 1

Today was a difficult decision whether to hold the position or exit. We didn't follow through to the upside. In fact, we had a little gap down, then continued down, and formed a Bearish Harami candlestick pattern. We closed under the 8ema, and Stochastics are not yet oversold. Also, yesterday we didn't close over the 8ema, so we're into this trade decidedly early. All this is Bearish and a good basis to exit the position, which is now underwater by about $240.

But, on the other hand, Monday's are a bit squirrely and deceptive, as far as price action. We may be just doing a retracement after a big move on Friday and have a "turnaround Tuesday" tomorrow. Also in favor of holding is last Friday's bounce off the AB/CD completion at the 61.8% Fibonacci retracement of XA. And we found support on the 50sma.

Since we have a fixed risk, thanks to using options, I decided to give this trade a chance to recover tomorrow, and held the full position. If things look bearish tomorrow as well, we probably need to close this trade.