Aug 2020: HD $280 – $285 Bull Call Spread
Stock
HD
Trade Structure
$280- $285 Bull Call Spread
Trade Date
08/24/2020
Price Paid
$250
Expiration Days
9/25/2020
THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.
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Trade Rationale
We have seen this setup before in ANET. I can't explain all my setups in advance as the stock market is an ever-changing environment, but I do get into details when those setups show up. The way this setup works is - you will see a run up before earnings. Don't ask me why it happens (insider trading? news leaks?). I don't know and I don't care. The bottom-line is that it does happen a lot. When you see a nice pre-earnings run up and you are scratching your head, you can almost rest assured that it will be followed by post-earnings profit taking even if the earnings report were great (Unless it is TSLA which defies all logic and rational thinking). We saw a similar pattern on HD. Instead of figuring out why it is happening, our job is to find out when to get in to a trade in these situations. You will see that I got into a trade based on simple support/resistance.
Trade Selection Criteria
Overall market movement
This is a post-earnings trade. My usual mean reversion parameters don’t apply here. These trades are based on Support/Resistance only
No Earnings or Significant News
Earnings are behind us and were announced on 08/18
Bollinger Bands outside Keltner Channels
This is a post earnings trade – our regular mean reversion indicators don’t apply here.
RSI Analysis
This is a post earnings trade – our regular mean reversion indicators don’t apply here.
ADX Analysis
This is a post earnings trade – our regular mean reversion indicators don’t apply here.
Trade Analysis
Due to the massive 14% correction in September, this position was a full loser. See the note on bailout trades.
Trade Outcome
LOSER
Profit/Loss
$-250
Beginning Account Balance
$6,385
Ending Account Balance
$5400