Wednesday, March 14, 2012

TA entry levels - Break to new high ($AAPL example)

one of my previously mentioned TA levels to use for entries in credit put spreads is when stock breaks to a new high. many on TV will say they are not interested in getting in stocks at 52week/all time high. if a stock is 100 how does it get to 200...has to make a high every dollar it goes up.. write this part down..the 52week low list is not a shopping list for new stocks to invest in... so lets use my recent Apple trade as example since everyone and their cat watch AAPL:

   Stock had all time high near 548 last week..monday this week broke thru that level to 552ish..would have been nice if it was on bigger volume but it is what it that breakout was the trigger to enter. i will admit i was expecting down move back towards 520 so this move snuck up on my. i used the recent selloff low near 520 as the support line to shoot against with a apr510/515 credit put spread. Trademonster analyse tab showed that to be 78%probability of max profit. you could be real ballsy and use higher strikes say a 540/545 and pull in some juicy premium but thats not my style..i target probabilities at 75%+
   Stock behaved perfectly, it continued moving up, almost panic mode feels like..but after 2days the spread has given me a 50% gain. Took profits with that.
  The takeaway..focus on the strong stocks..the 52week high list..the best of breed, the industry leaders... 52week low stocks are there for a reason...the RIMM's the FSLR's