TREE $230- $240 Call Spread - Although, this trade was taken post earnings, but it is actually my typical mean-reversion trade. Lending tree beat earnings estimates and initially shot up. However, after announcing a secondary offering of 2.9 million shares, it got punished brutally. Diluting the value of a stock will usually bring the stock down slightly, but this exaggerated move is a little overdone. I have been looking for any sign of a recovery and decided to take this trade after some of my indicators as shown below start showing some promise. You will see that although, ADX is still strong, the DI- has started pointing down. RSI is popping its head up after being in over-sold territory since 11/23. In addition to this a DOJI followed by a green day also boosts my confidence about this trade. Of course, there are never any guarantees in the stock market, but my job is to follow the rules that have worked consistently for the past decade and put on trades when things line up. If you follow your rules consistently, you will end up having more winners and losers and that is all it takes to keep growing your account.

This trade worked out beautifully and we were able to close it for 90% profit with 15 days still remaining to expiration. Another beautiful thing about Debit Spreads is that you can double your money with a small $5 to $10 move in the underlying stock. If you were buying regular stocks, the stock price would have to double for you to double your money!!!