Jan 2020: BKNG $1875- $1895 Bull Call Spread
Trade Selection Criteria
Overall market movement
After making new highs, week after week, Dow Jones dropped up to 500 points yesterday at one point in the day. The market had its worst day since Oct 2019.
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
Bollinger Bands outside Keltner Channels
Bollinger Bands are way outside Keltner Channels. As you can see in the chart, BKNG dropped like a rock in the past few days with no real reason. Since, I am aware of the stocks “personality”, this is highly unusual. Perfect time for a mean reversion trade
RSI is below 30 indicating oversold conditions. But not showing clear signs of a reversal.
ADX below 40. So not too strong and not weak. Again, we are not getting any clear signals here as well.
Beginning Account Balance
Ending Account Balance
Thank you very much for posting the trade about BKNG. I would like to give my inputs for this trade is that BKNG is down because of Coronavirus in China which had an impact in tourism. I think until the situation is resolved it may not go up. I would say it will be perfect if we wait till the positive news on coronavirus and a trend reversal indicators.
I have read your book couple of times and very thankful to you for bringing such a nice one. It really helped me how to analyze stocks, trends, planning, exist, etc. Hope will see more of these kind of books from you.
Have a great day ahead.
I appreciate your feedback. I want to develop this site into a community where all of us learn together as we tackle new $25k challenges year after year. So, feedback and alternative views are more than welcome. What I meant by the “no fundamental news” was there was nothing wrong with the stock itself. The news is more of a macro-economic event.
Also, sometimes I do put on these trades based on my gut feeling. It is worth risking small amounts as the max I can lose on this is $500 (I close trades if I lose 50% of my initial investment).
Also, would be great if you could leave a positive review of my book. Unfortunately a competitor has left a 1 star out of spite for me 🙁
Thank you for your response. I am not aware of macro economics and micro and probably I will wait for confirmation. I am just starting now and joined your challenge, hopefully will get profits.
Sure, I will give a good feedback about the book. Don’t worry about the comments, because amazon is showing your book as the best seller.
Great book Nishant! I do agree with Hanu that I’d wait until there is solid confirmation on the uptrend.
Will give you my 5 starts for the book, and I look forward to joining the 25K challenge group this year.
Marcelo, thanks for your kind words and supporting my efforts.
Where was BKNG when you placed the trade? Your stokes are far ITM now.
Bryan, yesterday BKNG dipped all the way down to $1865, but when I put on this trade the stock was at $1880
Hello Nishant, thank you for sharing. Your method works, but when the markets are down big like on Friday its ez to get stopped out. I can see why you look to buy at least 30dte. I was going to buy Bkng 1830/1840 March 6 bull calls with 30 minutes remaining, but the spread was too large. How do you account for a wide spread? Thank you
Theta was high, IV percentile 62%
When markets are down big, yes you may get stopped out which is fine. I usually go big on such down days. In fact I did put on several positions which I will document in a day or two.
The BKNG 1830-1840 spread will cost you $500. Depending on your account size, it is not that much. Also, theta and IV are not an issue with spreads because the theta and IV of the long call gets cancelled out by the short call.
Thank you Nishant
Is there a way to setup a scanner for trades that fit the indicators? I like your strategy but I feel like limiting focus to such a small group means maybe one trade a month but maybe I am wrong.
Yes it is possible to set a scanner very easily. In fact, I have done it on Thinkorswim and I will be sharing this scan with my subscribers when I start my next challenge. But from my experience, there is no substitute for the human brain at least as of yet. So, automated scans will help you filter out the noise, but you still need to use your mental faculties and experience to make the final judgement.
Going back to your point about only 1 trade a month, trading more does not equate to profits. In fact, one winning trade that can double your money every month is awesome if you are lucky enough to get it.
Having said that, just think about the returns we are getting here. No hedge fund or any fund on this planet can claim turning 2500 into 25000 in a year. Of course I am not promising that either. But I have done it so many times myself, that I can confidently say that it is very much possible.
Again, this is a potential of 900% returns that we are talking about!! Most hedge funds will charge you a huge commission (between 20% – 25%) even if they get you a 16% return. Think again – 900%. I will do 1 trade a year if the potential return is 900%
Hi Nishant –
Just a question on your ‘risk’ logic. If you buy the debit spread with approx 30 DTE – you say you close your position if you lose 50% of your original investment. If you have 30 days in the contract – do you exit at 50% loss if it’s within the first few days or week1 of purchase – or do you let it use up some time first – and bail out maybe after week 2 if you are still at or below 50% loss?
Thanks for the info!
I am all about simplicity, so I stick to the 50% loss rule irrespective of the time left to expiration. Having said, that unless it is a flash crash kind of a situation, it rarely happens that I lose 50% in the first week of putting on a position.
Spreads are not sensitive to price movement in the first 10 days. Even if the stock goes significantly in the opposite direction in the first week, you will hardly see any losses mounting up in your position. As expiration nears, the spreads becomes more sensitive towards price movement. Hope that helps!
BKNG has pretty limited open interest. Have you encountered any is issues getting in or getting out of the spread?
No, I never had any issues opening or closing trades with BKNG. Which month and what strikes are you looking at for OI?
Why it’s NOT good time to set up trades when BOLLINGER BANDS INSIDE KELTNER CHANNELS?
Hi Tony, I have mentioned this in my book. Bollinger Bands inside Keltner channels indicate a period of low volatility. You will find that in these situations, the stock price is stuck in a small range barely giving you any opportunity for swing trading. Further, low periods of volatility are usually followed by explosive price movements. And since you have no idea about which way the stock will exploded to (up or down), you don’t want to be caught on the wrong side of the trade when this happens.
I was looking at the March 6th options around the money. After reading your post I decided to give it a shot. I was able to buy the 1875/1885 spread without any difficulty. Thanks!
I like this but as you realize now the stock went right to the Nov low and Aug gap ~ 1826
I think indicators are fine but you can improve further by incorporating support and resistance.
This trade may be working out right now. But I think it was a bit early… I’d be very hesitant to put $1K at risk.
But, take profit whenever you can!
I understand that my system may not work for everybody. It does work for me though. I would have closed this trade out $500 loss as I do with all my trades (as mentioned in my book).