Wednesday, January 22, 2020

CVX Swing Trade

On Tuesday Jan 21 we closed CVX Call credit spread for  a win. In this post I will try to explain the strategy I used for this trade, and the same strategy that I use to share my trades on the free whatsapp group that I have which is open to anyone who would like to join.

In short, I scan everyday the stocks for 5 closes below or above a modified bollinger band of standard deviation of 0.382 a well as the 50 SMA. 

On January 14, CVX came up on my scanner by showing 5 closes on the daily candles below the modified bollinger bands and 50 sma. 

I placed a trigger below the highest of these 5 candles at 115.70 which was the 1 cent below the low of the 5th candle which was the lowest from these 5 candles. 

In the above chart the black line is the 50 SMA, and the green and red lines are the modified bollinger bands, the blue line is the 200 SMA. So after I place the trigger at 115.70 I add this ticker to a watch list so that I check it everyday after the close if the trigger is not triggered. If any day a candle close in the modified bollinger bands I cancel the trigger and wait for another signal. if CVX trade at 115.70 or lower any day after the 5th candle that is when I enter a CALL credit spread (Bearish strategy) 30 DTE and either ATM or 1 strike away. 

Also As you can see on the chart above on January 15 I got an alert at 10am that CVX is trading at that price. It does not matter if it closes below that price as long as CVX trade at that price or lower then the strategy kicks in. So I opened the trade and send the alert to the Free whatsapp group

the above option is betting that CVX by feb 14 will be below 116 and our stop loss will be double the credit received so when this spread cost 1.06 we will buy it back and our loss will be 0.53 only. Since we sold this option at 0..53 credit we plan to buy it back at 25% profit or when the spread cost 0.35. As long as price stay below 116 the spread will loose value and eventually expire worthless but I personally like to take 25% profit on these trades, free up some buying power and enter another trade. 

The reason I go 30 DTE is to give the ticker some time to move around since this is a momentum strategy sometimes it takes time for the momentum to kick in 80% of the time. Some tickers like to go test the 50 SMA before they move with the momentum of this strategy and as long as the cost is not double I stay in this trade and do not close it out. 

As you can see in the chart below that CVX went against us for 2 trading days before it started moving in our favor and all this time I just keep the trade open and check the cost to make sure my stop loss did not trigger. 

On Tuesday January 21 2020  at 8:56am the price target was met at 25% profit and we closed this trade by buying back the spread for 0.35 and profiting $18 per contract on this trade and I sent the alert to the Free whatsapp group as well. 

Profit: $18 profit per contract. 

This trade require patience and require to stick to the rules because a lot of time the price will go against you before it bounce back again but as long as you are not loosing double the credit received you should stay and let the probabilities play their role. 

From my experience last year trading this strategy and sharing it on my whatsapp group that it works 80 % of the time and the other 20% it will be a looser but as long as you manage your losses the profits will be way higher than the loss you might get from it. 

Hope this help the members of the whatsapp group and other people reading this post understand the kind of trades I share on the free whatsapp group that I have that is based on this strategy only. 

If you would like to join my free whatsapp group and be notified when I open or close a trade please click the link below: