Dec 2019: BKNG $2067- $2037 Bear Put Spread

Stock

BKNG

Trade Structure

$2067-$2037 Bear Put Spread

Trade Date

12/30/2019

Expiration Days

01/24/2020

Trade Rationale

Dec 2019: BKNG $2067-$2037 Bear Put Spread. With the market on a tear, BKNG has been making new highs day after day. Finally on 12/30 we see a red candle showing signs of a possible exhaustion. ADX is still below 40 which means there is no clear signs of this trend continuing. On top of that RSI is giving us a very clear signal. It was in the overbought territory and finally dipped below 70 indicating a possible trend exhaustion.

BKNG_2067_2037_Bear_Put_Spread_Open | Mean Reversion Trading Using Options

Trade Selection Criteria

Overall market movement

Overall market has been on a tear for weeks. I mean look at BKNG, looks like it is invincible and will never stop. However, our first red candle after this extended trend combined with RSI is giving us a possible trading opportunity here.

CHECK

No Earnings or Significant News

Earnings are behind us and the next earnings will be after our expiration cycle. Earnings scheduled for 02/26/2020

CHECK

Bollinger Bands outside Keltner Channels

Bollinger Bands are clearly outside Keltner Channels. Perfect time for a mean reversion trade

CHECK

RSI Analysis

RSI finally dipped below 70 after being in over-bought territory for quite some time, indicating a possible trend reversal.

check

ADX Analysis

ADX is weak and does not give any clear signals about the current trend.

Indeterminate

Trade Analysis

After I put on my position the stock went down for a day and then resumed its march to make new highs. However, I did not lose 50% of my investment at this time so I held on to the position. If you have read my book you will notice that this is inline with my loss management criteria. Fast forward to 1/24 expiration day, the stock crashed and burned allowing me to close the position for a 100% profit.

Trade Outcome

Winner

Profit/Loss

$1200

Beginning Account Balance

$16,200

Ending Account Balance

$16,400

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To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

9 Comments

Fred Ferenczhalmy on January 24, 2020 at 9:49 pm

Looks like this ones a winner.

Nishant on January 24, 2020 at 10:03 pm
Yes Fred. An absolute winner. I will be updating the open positions this weekend to reflect the outcomes.
Reply

Albert Johnson on January 25, 2020 at 10:02 pm

Really enjoyed your book and lessons – but was a little impatient to try out your methods and jumped into a bullish vertical trade on Google perhaps too soon – but have until Feb 21st – so we’ll see. Left a positive review on Amazon and telling friends about book.

Nishant on January 25, 2020 at 10:05 pm
Albert, thanks for the kind words and sharing my book. Just curious what does your spread look like?
Reply

Albert Johnson on January 26, 2020 at 3:26 am

Goog Feb 21 2020 vertical call spread 1480/1485; Though most indicators were heading up even after multiple green bar days, RSI strong and ADX over 50 – may have taken a long position too soon – but have some time and not down 50% yet. .

Albert Johnson on January 26, 2020 at 3:31 am

Looks like when you open several positions in one month – you still make sure to never have more than a 1/3 of your invested capital at risk or in play- correct? Any particular reason to limit a specific trade to $600-800 when you could go higher? Or just diversifying/spreading your risk even with that 1/3?

Nishant on May 8, 2020 at 2:30 pm
Albert, weird that I just saw your comment after so long. Yes, I am doing it for diversification and spreading risk. Not putting all my eggs in 1 basket basically.
Reply

Maurice Matthews on May 7, 2020 at 8:31 pm

Quick question with a $30 spread shouldn’t the cost be closer to $2000 or am I thinking about the pricing incorrectly?

Maurice Matthews on May 7, 2020 at 8:34 pm

I caught my mistake. It should be closer to $1500. ~$250 per 5 point spread.