As you know, I’m a big fan of trading rules.
They keep us from holding on when we want to stay in the game — an urge we need to fight when trading short-term options. After all, while we experience fast pops in these trades, we can always experience quick drops.
So we have our defense system to keep us on target. That’s how we ended up with an average gain of 35% across three weeks in the later part of last year.
That brings me to today’s alert.
Today, we’re selling Mattel (Nasdaq: MAT).
From moment I sent the initial trade alert, this has been an unusual position. The stock gained 15.9% within 17 minutes. That’s an unusual price move for any stock, and it made this a challenging trade.
The price move meant you enjoyed a quick 50% quick gain if you were able to enter the position quickly. Meanwhile, many of you were unable to enter the trade because of the rapid gain.
That price move also resulted in a sell rule being triggered at the close yesterday.
Our calls closed at $1.61. One of our rules is to sell if the position closes 40% below its highest closing price. Since that close was $2.80 on the day we entered the trade, a close below $1.68 triggered a sell.
Now the position has been hit a little more by today’s sudden market downturn. So let’s close the last half of our position today. This will hand us an overall gain of about 20% in one week.
To exit this position, use a “sell to close” limit order:
|Sell Action to Take|
|Option Type:||Call Option|
|Expiration:||February 16, 2018|
|Action:||Sell to Close|
|Order Type:||Limit Order|
|Trade Deadline:||If this order is not filled near the end of the trading day, cancel the limit order and enter a market order, which will fill immediately.|
Selling tip: This option is trading at about $1.45. So you could set a limit order to sell at the current market price. That should reduce your loss, but it may not be executed. Remember to check and edit your order if need be to make sure you exit today.
Finally, I want to let you know that I’m watching our position in NXP Semiconductors N.V. (Nasdaq: NXPI).
The Qualcomm takeover battle of NXP has been going on for some weeks. It seems unlikely that Qualcomm will be able to complete the deal at $110 when some of the company’s largest shareholders believe the stock is worth $135.
So, this has caused some investor uncertainty.
And our February $120 option is declining in value as the battle drags on. Today’s market downturn hasn’t helped. So my eyes are on this trade, and I will follow our sell rules as always.
This call closed as high as $3.60 after we opened the position. That means a close below $2.16 will trigger a sell. If that happens, please keep an eye out for my alert tomorrow.
And if you have any questions or comments that you’d like me to address on a future update, please send your emails to firstname.lastname@example.org.
Michael Carr, CMT
Editor, Precision Profits