Trade Alert: Lock in a 21% Gain and Preserve Capital

This morning, our protective stops in Edwards Lifesciences were triggered — ensuring we’re getting out of this position with a profit.

So great job on sticking to our strategy of locking in gains.

The call option opened at $7, below our official $7.51 stop. That means we received a 21% gain on the second half of this trade.

Since we closed the first half on Monday for a 50% gain, we’re grabbing an overall profit of 35% in less than a month.

If your order to exit this position hasn’t been filled yet, go ahead and exit it at the market.

Now we’re going to place a stop-loss on our two remaining positions to preserve capital.

Western Digital (Nasdaq: WDC) historically exhibits a nice rally during this earnings drift, but that hasn’t played out this time. The end of our ideal one-month holding time is now nearing its end, and this option is approaching our maximum loss threshold of 75%.

So let’s place a stop at a 75% loss.

We want to use a stop-loss order because in a rapidly shifting market — like the one we’ve seen over the past few days — anything could happen. Of course, if stocks rally, Western Digital will benefit, and we could see a smaller loss or even a gain before it expires in June.

However, we also have a loss-management strategy in place, and it has preserved capital on positions that have gone on to lose 100%.

Based on our official entry price of $3.07, I’m placing our stop-loss at $0.76. Be sure to place yours at whatever means a 75% loss for you. You will also have to cancel our standing limit orders to sell half the position for a 50% gain before placing this trade.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Western Digital Corporation (WDC)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $90
Option Symbol: WDC170616C00090000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Stop Price: Whatever nets you a 75% loss.
Trade Deadline: Keep this order open until it is filled or canceled.

We are going to do the same with Caterpillar (NYSE: CAT) today.

Other than the surge on the day we got in, this stock has failed to live up to its drift pattern. So it’s only prudent to have a stop-loss measure in place. The option doesn’t expire until July 21, but we know from our research that when an option hits a 75% loss, it rarely recovers.

Therefore, we will place a stop-loss to preserve capital.

Based on our official entry price of $3.30, I’m placing our stop-loss at $0.82. Be sure to place yours at whatever means a 75% loss for you. You will also have to cancel our standing limit orders to sell half the position for a 50% gain before you place this trade.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Caterpillar Inc. (CAT)
Option Type: Call Option
Expiration: Jul-21-2017
Strike Price: $105
Option Symbol: CAT170721C00105000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Stop Price: Whatever nets you a 75% loss.
Trade Deadline: Keep this order open until it is filled or canceled.

That’s all for today.

I’m watching seven more companies that have yet to report this quarter. Five of them will report before or after the market on Wednesday, so we could still have a few more trades this earnings drift season.

I’ll monitor these possible trades and alert you if it’s time to take action.

Regards,

Chad Shoop, CMT
Editor, Earnings Drift Alert