I have started a new position two days ago. I want to share this trade with everyone, and give you my rules for the trade. You can still enter the trade at about the same price I entered. This trade is in anticipation of a breakout above a very strong resistance level. This trade can also be started if the breakout actually occurs. I will be adding to my position upon a breakout of this resistance level and moving stops and adjusting trading plan at that point. This post will cover the anticipation trade that is currently on in my portfolio, with my rules, reasons for entry, and cover the potential catalyst. I will be using the following FreeStockCharts.com chart that I have marked up to highlight the trade. Please refer to this chart as I discuss the trade. If you have any questions or comments on the trade I look forward to you seeing them in the comment section of the blog. There is a comment tab at the bottom of the post that I would love for everyone to click on and provide me with your feedback, questions, or general comments. Ok, let,s get started, here is the chart:
Summary of Trade:
This is an anticipatory long only directional trade that I have already started. I expect to see this position retest the resistance level it has tried to break several times now. I feel there is a strong enough catalyst coming that will move the stock above this resistance and much higher. There is some market risk now with the markets currently trading in a very tight range and potential for a breakdown or breakout. The move from March has been very impressive, and with the new calendar year on the horizon we may see a change in sentiment when big institutions get back in the game following the start of the year, or a continuation. I have been waiting for the market to show its hand, or for strong catalyst positions to arise like this one. I am going to be aggressive with the length of time on this trade due to the New Year, and how the catalyst should play out. Please, read on to see current position and the options that I have for this trade. I will explain several of the reasons for entering the trade in more detail below, but first let's get you the trade information and then I will explain.
Current Position:
This is an anticipatory long only directional trade that I have already started. I expect to see this position retest the resistance level it has tried to break several times now. I feel there is a strong enough catalyst coming that will move the stock above this resistance and much higher. There is some market risk now with the markets currently trading in a very tight range and potential for a breakdown or breakout. The move from March has been very impressive, and with the new calendar year on the horizon we may see a change in sentiment when big institutions get back in the game following the start of the year, or a continuation. I have been waiting for the market to show its hand, or for strong catalyst positions to arise like this one. I am going to be aggressive with the length of time on this trade due to the New Year, and how the catalyst should play out. Please, read on to see current position and the options that I have for this trade. I will explain several of the reasons for entering the trade in more detail below, but first let's get you the trade information and then I will explain.
Current Position:
At Point 1 on the chart I entered the following trade at 0935, 07DEC09:
Long 5 contracts of the UNH JAN 2010 28 Calls (UNHAT) @ $1.50.
The Trade Plan:
Entry Point: This current position was entered in anticipation of a move back to near the resistance level that I show in the chart near 30. I feel strongly that this move will happen and wanted to put on some risk to take advantage of a move to that level. As I write this the bid/ask is $1.70/$1.74. I feel that is still a very good entry price for this trade if you want to get involved. I would enter into this position anywhere down to UNH at 27.5. This is the first support at which I feel comfortable entering a long only anticipatory position.
Protective Stop: I have two rules for the protective stops of this position.
Rule 1: Stop out if at anytime the long only call is down 50%. Please, follow this rule strictly! For me
on this trade it is at $0.75. Adjust for your entry price accordingly.
Rule 2: Stop out of entire position if UNH closes below 26.5. This should be very close to the 50%
mark, but gives up support at this level and not worth the risk of holding for a bounce.
Reason for the Trade:
I have a few reasons for entering the trade. The first is the government catalyst for this stock. As everyone knows the government is in the throes of trying to get health care reform passed. Within the past few days the private option has been thrown out and that is a positive for companies like United Healthgroup Inc. (UNH). That is why I entered the trade where I did in anticipation of a break above the resistance at 30. I had this on my watch list for a while now looking for that break above that level. When I heard the news I went ahead and entered a small position to take advantage of the run up to 30 and the test of the resistance. Thus, making a little money along the way. I typically would give more time to a long only play, but due to the new year coming, UNH earnings on 21JAN10, and either a passing/failing to pass of health care reform prior to end of the year I didn't feel it necessary to pay up for time. I compensated for buying near the money strikes vice deeper in the money giving some leverage if there is a solid move in the time frame I a looking at. I really feel either way on this bill we see a pop out of the stock, which I am hopeful will break the 30 level creating a potentially large move. The magnitude of the long term triangle is about 15 points and would put the target at 45. If you look back in time you will see that is the top of a gap that occurred and should provide for a new resistance point. I find this very interesting that the two points coincide in my eyes. Either way they go on this bill we will know by the end of the year and I feel that either way it is a positive catalyst for UNH without the private option or going into next year. If the bill goes into next year it is probably a dead issue. Thus, back to business as usual for the company, and that means they continue to make great money. The following is last reason that I have for getting involved in this trade. The 30 strike and strikes very near that have been being bought heavily as compared to the puts in the stock. Typically, this is a very good confirmation indicator for me. The last trade in Mosiac that I highlighted worked very well with the same type of indications in the call activity.
The Breakout of Resistance with UNH breaking out above 30:
I am going to add to this position in a very aggressive manner. The specifics of how I am going to add to the position I have not narrowed down yet, but if it happens over the next few days I will consider staying long only, but increasing my size substantially until the momentum stalls and then may take follow on actions of creating spreads or locking in the gains. I will keep you informed real time of all the trades I take in this plan via the twitter update, and then the end of the day post update here to the trade.
I will continue to post updates on this trade as I track it and new updates to news and events occur. This is going to also be a time sensitive trade for me due to the January strike and the New Year. So, if there is not a significant move I may walk away from the trade and put it back on the watch list waiting for the breakout trade only. I will keep you posted on my thoughts here at a minimum of weekly.
It is now getting late and I need my sleep. Happy Trading and enjoy the holidays! Maybe the Government will give us a nice gift in some strong catalyst for this trade. Stick to the rules, and look for updates on here or on the sidebar from Twitter.
The Breakout of Resistance with UNH breaking out above 30:
I am going to add to this position in a very aggressive manner. The specifics of how I am going to add to the position I have not narrowed down yet, but if it happens over the next few days I will consider staying long only, but increasing my size substantially until the momentum stalls and then may take follow on actions of creating spreads or locking in the gains. I will keep you informed real time of all the trades I take in this plan via the twitter update, and then the end of the day post update here to the trade.
I will continue to post updates on this trade as I track it and new updates to news and events occur. This is going to also be a time sensitive trade for me due to the January strike and the New Year. So, if there is not a significant move I may walk away from the trade and put it back on the watch list waiting for the breakout trade only. I will keep you posted on my thoughts here at a minimum of weekly.
It is now getting late and I need my sleep. Happy Trading and enjoy the holidays! Maybe the Government will give us a nice gift in some strong catalyst for this trade. Stick to the rules, and look for updates on here or on the sidebar from Twitter.
Posts
0 comments:
Post a Comment