Current Status

Well, I've had some losers lately, not a good start to this blog. But, by seeing my early losses on this blog you will gain some good knowledge on what NOT to do. Please learn from my mistakes and save your money.

I've got a trip planned for the middle of December, basically options expiration week. So, I'm not putting on any new trades until I get back (remember the PALM lesson). Until then I will be doing some backtesting, cleaning up some charts, polishing up my trading plan and getting ready to punish the market in 2010.

The only trade I have on is FAST. I will close out this trade before I leave for my trip. Once I get back, then I'll probably need to do a little more work to turn this from a losing trade to a winning trade.

If you are not going out of town and can watch the market during the holidays then try to put on some nice out of the money credit spreads. The WONDERFUL part about the holidays in the market is THETA. There's tons of it because of all the days the market is closed around the holidays.

One last item to remember about the holidays - the market generally does not move much, it just kinda drifts sideways and up. So, focus on some Bull Put Credit Spreads.

Update - PALM

PALM - what can I say. I took a trade that I normally would not have taken, and the market taught me a valuable lesson.

Lesson: ONLY trade your original plan - otherwise, the market could get the advantage.

Here's the chart on PALM:

Okay - so you know what happened from the last update on this one (November 9th update). To quickly recap, PALM was forming a pennant pattern (which is bullish), HUGE insider buying took place, and I THOUGHT this was going to be a quick and easy play - wrong.

I rolled this thing out once where the 2nd blue box is located. I had an out of town emergency which took me away from my trading and as Murphy's Law would have it, the stock went drastically against me.

I held onto this spread because I thought there was a possibility of a nice pop back up. I needed it to go back up at least to the mid $15 range. There was some news out about a possible takeover of PALM, which would have helped this happen. But, nothing did happen and if I didn't buy this spread back before the November option's expiration on November 20th, then I would have been "put" 100 shares of PALM at $16, when it's value was $11.74. Not good.

So, I bought it back for $0.96.

Let's go over the whole enchilada to determine my profit/loss:

My October trade was a loss of $0.44

I rolled out and sold the November trade for $0.40

I bought back the November trade on 11/17 for $0.96

So, my NET loss is $1.00

I know in my last post on this I said I was going to work on turning this into a winner by working on it. I could still do this, however as the famous Kenny Rogers once sang, "...you gotta know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run..." In my case, I'm walking away.

I'm walking away because, YES I could turn this around for a profit BUT it would take a few months and I believe that due to the lost opportunity cost I would theoretically lose more by tying that margin up rather than finding better trades.

Remember: when you sell spreads, your broker will keep part of your account in margin and you cannot use that margin for any other trades. I don't want to tie my margin up with this trade. I'd rather take my loss, learn my lessons, and move on.

Lessons:

1. Do NOT deviate from your trading plan. Hunches, guesses, and gut feelings are best left for Las Vegas. We are doing this as a livelihood and it's a business. We put as much advantage in our corner as possible, anything less is being foolish.

2. Once a pattern is broken (this example it broke it's bottom support - blue line) then GET OUT. You can always re-enter once you figure out what's going on to correct the trade.

3. If you are going out of town - planned or not - then close your trades out.

Update - FAST trade

On 11/17/09, just 3 days before the November options expiration, I sold the long November 35 Put Option I had on FAST for $0.05.

The stock price wasn't going anywhere but sideways and I decided to get whatever I could at this point.

My Net Loss so far is now $1.88 after selling back this option to the market. I'll continue working this stock to correct it.

Update - FAST trade

I've done a couple of things in FAST recently to start fixing it. Here's the chart - it has a ridiculous amount of stuff on it:

Let's start with a quick recap before going to what I have done recently. I originally was bullish on this stock and placed a November 40/35 Bull Put Credit Spread on 10/15/09, which I received $1.47 for. This is represented by the blue box.

I had an out of town emergency and basically could not get to the stocks for about a week. Ironically enough, this was when the market really started dropping. Murphy's Law.

I figured there would be a support level around the $34.50 mark since that was the last low in this general area back on 9/2/09. So, I just waited to see how it would react to it before taking any action.

We bounced back up to approx $37.50 where we found some sellers (resistance). You can't see it on the chart, but this lines up with the 50 day moving average just above it helping to act as resistance.

On 11/12/09, the second to last candle on the chart (it's a black candle), we started rolling down from that $37.50 resistance. On that date I bought back the short November 40 put for $3.40.

At that point my profit and loss looked like this:

10/15: $1.47 credit

11/12: $3.40 debit

NET = $1.93 debit (i.e. LOSS)

Then today, 11/13/09, I decided to put on a Bear Call Credit Spread. I sold the January 40 call and bought the January 45 call, which brought me in a credit of $0.65.

I'm thinking that we go back down from here. When we do, I'll look for this spread to lose money and will buy it back for a cheaper price.

I definitely have a couple of months worth of work here to get back to positive territory, so FAST will be with me for awhile. However, this will be a great learning lesson on how to correct trades.

Update - SMH trade

I closed out the SMH trade on 11/12. Here's the chart:

SMH had a nice bounce back up. I decided to close this position by buying back the credit spread on 11/12 for $0.27 (the blue box furthest to the right on the chart). The price was coming back up to the heavy resistance and I didn't want to take any chances for the stock to bounce back down from that - especially since we are running out of time for this November expiration trade.

So, I closed out buying back for $0.27 and originally sold the spread for $0.35. Therefore I made $0.08 on the trade.

Again, this was not a trade that is going to make me rich. But, I also did not take a loss on it.

I'm feeling very good now that out of all the trades that originally went against me, I only have 2 left open to fix. Things could be a ton worse.

Updates - PALM, FAST, SMH

Let's look at some charts:

PALM:

Well, so far I have gotten my you-know-what handed to me on this one. That pennant formation did not pan out and apparently those insider buyers are losing big time. Again, I was away and couldn't trade. But if I could have traded, I would have probably gotten out and fixed the trade once the pennant was broken to the downside and we had those few days of sideways action.

No use crying over spilled milk. From here I MUST buy back this trade before November expiration and take my lumps (unless some amazing happens and we get back above $16.

I'm going to wait and see what direction we go from here as we're sideways again. The markets moved up well today so maybe they can pull this one up. Either way, I'm going to just plan on extending this trade out a bit to turn it into a winner (or much less of a loser).

Next is FAST:

I'm feeling fairly good about this one. It's moving back up nicely and I don't see any real need for action right now. Just going to take it day by day for now. Not really worried.

Now onto SMH:

I feel fairly decent about this one as well. We're getting close to where I sold the spread. The only little nasty is that 50 day moving average that we're hitting our head on today. The stochastics is high (could be bad for us), but the MACD is low and rolling up (could be good for us). So the indicators are a tad mixed.

Again, no worries, just going to take this one day by day.

At this point, we're all caught back up. I'll take things day by day and look to take profits or put on new trades accordingly. Even thought the market went against me, I do believe that I'll still come out on top.

Update - WYNN trade

Today I did some work on WYNN, first let's look at the chart:

Yes, my charts are just getting busy - you'll have to look closely.

Here's what's happened up UNTIL today:

1. Had an October trade and ended up with a net of NEGATIVE $0.90

2. Fixed that trade on 10/15 by selling a Nov. 60/55 Bull Put Spread that gave me a credit of $1.65

Okay, so as you know you really don't keep that entire credit that you sold until you close it out for $0.00. That rarely will happen with me. My main goal is to a position where I can buy back the Nov. 60/55 spread for approx $.65 or so. This would put that trade's NET at POSITIVE $1.00.

I would have taken that POSITIVE $1.00 and it would have offset the NEGATIVE $0.90 giving me a NET POSITIVE of $0.10. Not a ton of money - won't buy me many Bentleys but it will have turned my losing trade into a winning trade (no matter how small of a winner).

If you can't get a winning trade, then your second objective is to work on it and make the overall net loss as small as possible. Capital Preservation needs to rank very high on your trading objectives.

Now onto today - look at the most recent (far right side) blue box on the chart, which was today where I did a little work on the trade.

As you can tell from the last time I worked on the trade, which was 10/15, the market turned against me. Drat. It pulled back, stabilized out and then had a very nice pop up today on news. I decided to take some profits today based on that move.

Here's what I did today:

1. I bought back the Nov. 60/55 spread for $1.16. This gave me a positive net of $0.49.

2. I then "rolled out" my position by selling a new spread. I sold the December 55/50 Bull Put Spread for $1.01.

Let's do some math to see where I'm currently at:

Lost $0.90

Won $0.49

Net lost = $0.41 (so, I'm getting closer to turning this loss around).

I then took in $1.01 today, I need the stock to either go sideways or up so I can buy back this spread for $0.60. Because then I will make $0.41 on this current trade and this will get my loss erased entirely.

This is a lot I know, but if you take things one step at a time and always know where your profit/loss is on a stock, then you can keep working it as best as you can to get profitable (or at least minimize any losses).

One last and very important thought:

Notice that the 2 most recent blue boxes (where I did trades) are almost the same price, but yet I still made money on this most recent move. How can you make money when the stock moves sideways??? Theta!!! Thanks Theta - love ya.

Update - SPY trade

The stochastics indicator paid off with that divergence play. The SPY pulled back like it did during the past few pullbacks. So that long put option was a good one to play.

Here's the chart:

The entry was the first blue box you see and it was based on the sideways movement and the divergence of the stochastics indicator.

The second blue box was where I took profits on 10/28/09. I took profits on that day for a couple of reasons:

1. It was about the same percentage pullback as the last few pullbacks, and

2. It was basically sitting near that 50 day moving average, which institutional money usually pays attention to (good place for them to get long bullish).

I bought the SPY option on 10/20 for $7.92 and sold it on 10/28 for $10.80, which was a profit of $2.88.

That profit of $2.88 really helped to offset losses in my portfolio since everything else I have on was bullish.

Lessons:

1. Keep an eye on how the general market trades - watch how those pullbacks set up and watch those divergences.

2. Make sure if the market starts going sideways to buy some "insurance" for your portfolio to balance it out. I was completely bullish and had to get a bearish play in SPY to counterbalance that in case we pulled back. Thank goodness I did.

I'm back

I had to go out of town for a family emergency and missed quite a pullback.

I didn't have the ability to really trade while I was away. I was able to follow the market a bit and did cash in on my SPY trade, but that was about it.

The good part about the trades that I was in was that they were SPREADS. Spreads are easier to correct/fix than flat out long options or long stock positions. So, I don't feel nervous about where the market is currently at.

I'll address the positions in separate posts.

LVS - update

I closed out LVS today for a quick profit. I view this as "A bird in the hand is better than two in the bush". If you can get a quick decent profit, then take it and use that margin to enter another trade rather than trying to let the trade keep on going to POSSIBLY get the rest of your profit.

Check out the chart:

The reason I took profit today was that the price was coming down to support and the 50 day moving average, where I expect to either see a bounce back up or possibly some sideways action. I'm not close enough to expiration (which is in November) for Theta to really be decaying the value of this trade yet, so the sideways option isn't that attractive.

Here's what happened with the trade:

I originally sold the November 19 Call and bought the November 21 Call on 10/12 and I received a $0.57 credit for it. Today (9 days later), I bought the spread back for $0.25.

This gives me a profit of $0.32. Whoop-dee-doo, guess I can buy Sweden now (you might be thinking). But, what you really have to do in trading is to compare apples to apples. The way to do this is by figuring out your Return On Investment (ROI).

The ROI on this trade is figured by taking the net profit divided by the margin required. $0.32/$2.00 = 16% Again - big deal. BUT REMEMBER this was in 9 days!! Let's do some basic math. If we have 30 days in a month, divide that by 9 gives us approx 3 (and change). So if we did this same trade 3 times in a month, then that would be approx 3 times 16% = 48% ROI per month or approx 576% ROI per year.

So, bottom line: don't concentrate so much on how much you make, but rather your ROI.

PENN - update

Wow, apparently the earnings were good for PENN today, check out the chart:

2 things happened today and 2 things were learned today.

Let's first go to what happened with the trade and then we'll go onto the learned (hopefully) lessons.

The first thing that I did today with PENN was to close out the short Nov. 25 Put Option that was sold back on 10/16 for a $0.95 credit. I closed out that option by buying it back for $0.30. That was a nice $0.65 profit in 5 days.

However, the price on PENN went up high enough to hit my stop at the stock price of $29.05. This sold my long January 30 Put Option for $2.57. I originally bought this option back on 9/16 for $4.40. So I have a loss of $1.83.

So, let's go over the entire trade to see what happened from start to finish so we can get a net number to determine the win/loss amount on this trade.

I bought the Jan. 30 Put for $4.40 and sold for $2.57 = $1.83 LOSS

I sold the Oct. 25 Put for $0.45 and bought it back for $0.05 = $0.40 PROFIT

I sold the Nov. 25 Put for $0.95 and bought it back for $0.30 = $0.65 PROFIT

The total NET = $0.78 LOSS

As you can see, thanks to selling those other options I was able to reduce my loss from $1.83 to $0.78. Not only should you be concerned with your gains but also REDUCING YOUR LOSSES.

From here the plan is to wait and see what happens. I still have my bearish bias on this stock and on the chart you will see that I put on a 50 day simple moving average which is very close to the closing price of today. If it rolls over from that and starts moving lower, then I'll put on a credit spread to either lessen this loss or turn it into a profit.

Okay onto the learned lessons:

1. Again I learned to NOT leave physical stops in the broker system for the market to see. (refer back to my post on the Conspiracy Theory). I was an idiot and forgot to take this one out. A simple oversight. It should not have been in there and I would have still been in the trade right now. I'd rather get out on my own and usually I'd like to see 2 days of confirmation of my stop before getting out.

2. Earnings are DANGEROUS. The correct thing to do in this situation would have been to get out yesterday and waited to see how the price would react to earnings. It's a much safer bet to get out of your positions, let earnings happen, and if you still have the same bias a couple of days after the earnings release, THEN get back in.

So for $0.78 I learned (and re-learned) some valuable lessons. However, be sure to keep an eye on this stock for the next couple of days to see where it goes from here as we might be getting back into another trade on it.

New Trade - SPY

Got into a new trade today, here's the chart:

Sorry, but this chart is super busy. This is for the SPY - which is the ETF for the S&P 500. So it IS the market essentially.

Overall, before putting on this trade, I have been looking for bearish plays because my portfolio is too bullish in my opinion. I like to have about an even split between bearish and bullish plays if possible. This market seems to be getting a little heavy and even with good earnings today, we aren't jumping higher.

So, for those reasons I wanted something bearish to help neutralize my portfolio.

I noticed on the SPY Chart a couple of items that makes me believe that a bearish play might be wise:

1. We aren't going higher on good earnings from companies

2. The daily volume is average, so no big buyers are piling in to drive up the price

3. We are getting a divergence between the Stochastic indicator and price.

Let me address #3 a bit more. Look back on the candles from 9/10 - 9/22 and you'll see the up-slanting blue line. This is showing where price was going. Now, during that same time period look down at the Stochastic to find it's slanted blue line - it was GOING DOWN not up!! So we had a divergence. Notice what happened right after that divergence? The price of the SPY went down to hit the 50 day moving average before coming back up.

If you look at our most recent price action of the candles vs. the Stochastics you'll see almost the exact same set up . I believe that we're going to pull back to the vicinity of that 50 day moving average again. I'm still overall BULLISH in the market, but the market has to breath in and out. We're due for a little exhale before we can move higher in my opinion.

So, I did a real simple trade. I bought a January 115 put which is an in the money option for $7.92. Yes, a bit pricey compared to what I normally do. But, this purchase helps to even out my portfolio (thereby giving me some protection to the downside) and I can sell an option against it to help offset the cost if the SPY does not make a decently quick move down.

I'm going to slow things down at this point until I take some trades off the table. I feel very good about the balance of the portfolio and amount of trades.

So, from here, we just manage the positions.

New Trade - SMH

Here's the chart on today's new trade:

Looking at this chart you will see the blue box where I entered today's trade.

I entered because we recently had a temporary break above resistance (the horizontal purple line above). We didn't stay above that resistance long, but it tells me that we have some buyer's strength. Also, if you look back a few weeks you'll see a low near support, then there's the temporary resistance breakout, then the stock went to a HIGHER LOW.

Today we closed ABOVE THE HIGH OF THE HIGHER LOW - i.e. our entry signal.

You'll see the indicators below the chart are a bit mixed. The Stochastics is going lower, but it is about 1/2 way between the highs and lows that it makes - so I'm not too worried about that. However, the MACD lines are moving up, so that's good.

But, indicators aside, the main reason is because of that entry signal of today's close.

So, today's trade is BULLISH.

I entered a November Bull Put Spread. I sold the November 26 Put and bought the November 25 Put for a credit of $0.35.

Now, if you just look at that number $0.35 I know that it doesn't seem like a lot. But there is one HUGE DIFFERENCE with this trade, the strike prices are only $1.00 wide. This means that the margin that must be set aside is only $0.65 per contract. This is huge!

Let me make this easier with a theoretical example on SMH:

Today I sold the 26/25 Put Spread for $0.35, my margin requirement is $0.65

I could have instead sold the 25/20 Put Spread for $0.41, my margin requirement would be $4.59 (typically on less liquid stocks the strikes are $5 wide instead of $1 wide).

To figure margin: Take the difference between the strike prices and subtract out your credit.

So, in the:

first spread above my broker holds $0.65 to make me $0.35

second spread above my broker holds $4.59 to make me $0.41

As you can see, getting the liquid stocks and ETF's with $1 wide strikes are much more advantageous than stocks where strikes are $5 wide.

The reason that the strikes are only $1 apart is that this stock is actually an ETF. SMH is a Semiconductor HOLDR and has tons of open interest with it.

Check out the open interest on these:

I highlighted the 26 Put Option that I sold - it's open interest is approx 9,000. The 25 strike that I bought has an open interest of approx 46,000. That's just an AWESOME amount. The more liquid it is, then the tighter the bid/ask spread and the easier it will be to get out of the trade.

So that's it for now for this trade. I'm really looking for it to move up higher soon. If it just wanders around this general area for awhile then great - I'll let Theta knock it's value down.

**TRADING STYLE NOTE:

I'm going to start focusing more on these ETF's for trades. This is because I can really start loading up on the contracts while keeping my margin low.

Most BIG MONEY TRADERS will use these for the same reason. They can sell tons of options and get the most leverage for their money.

New Trade - FAST

Here's a new trade that was put on 10/15/09:

I've been watching this stock for a little while now and you'll notice the lines drawn on it. You can see that resistance has been fairly the same while support is getting higher. Technically, this is called an "Ascending Triangle" and is bullish. I'm anticipating a breakout to the upside.

I decided to enter a bullish trade at this point for the following reasons:

1. The MACD black line just crossed from below the red line to above it while the histogram is going higher - this is bullish.

2. The Stochastic black line looks like it's ready to cross the red line from below it - if so, then this will be bullish as well.

3. The price has been staying up closer to the resistance as compared to down below at the support.

4. We just had an earnings announcement and the price did break ABOVE the resistance temporarily. There are sellers up there, but that was a nice move a bit above resistance. This tells me that there are buyers and they are stepping up their game, even though sellers are up there, the buyers seem like they are getting stronger.

5. Related to #4 above, we just had earnings. So, hopefully we won't have any news on this stock for awhile. Nothing can ruin a trade as news can.

So, with those reasons I decided to make a bullish play. I kept in line with the revised style of trading that I'm now doing and entered a Bull Put Credit Spread.

I sold the November 40 Put Option and bought the November 35 Put Option for a net credit of $1.47.

*Important note: I sold an ITM (in the money) put option. Normally I won't do this, as they can be more risky, but as long as you have a solid game plan and closely monitor this position, then it can be worth the risk for the reward.

I like this particular ITM put I sold because:

1. The credit for the 40 that I sold is much greater than what I could have sold the 35 Put strike for.

2. I believe that this stock will get a good quick move to the upside to pop above that resistance. So, it won't be ITM for long.

3. The Theta on this is higher than the 35 strike - so time is even more on my side in decaying the value of that 40 Put Option that I sold.

So now, it's time to keep a good eye on this trade. Keep checking back for updates.

PALM - update

I had to do a bit of work on PALM this past week, here's the chart:

I still have my bullish bias on this stock. We're currently trading sideways and I'm anticipating a breakout to the up side. Some technicians would call this pattern (with the converging blue lines) a "pennant".

I originally sold the Credit Spread on 10/12 for $0.57. However, we got a day away from the October Expiration and my short leg of that spread (i.e. the $17.00 October Put Option that was sold) was in the money. What this means is that if I let Friday go by and I don't close the trade first - then I'll have to buy 100 shares of PALM for $17 (even though it's trading lower). So, this is bad.

Instead of having to buy those shares, I instead closed out the trade by buying the option I sold and selling the option I bought.

I closed out the trade for $0.77. So, I had an initial loss - boo, hiss.

I sold the spread for $0.55 and bought it back for $0.77, which is a $0.22 loss per spread sold.

However, the trade is not done. Instead of just taking a loss, I looked back over the trade and I'm still bullish. I still think I'm right and that it's going to breakout to the upside.

So, I "rolled out" this spread to the next month. If you look up "rolling out" for an option online, then you'll get more info than I'll provide here.

I rolled out this spread and sold the November 16 Put Option and bought the November 15 Put Option for $0.40 credit per spread.

So, I had an initial loss of $0.22, but then brought in $0.40 on a new spread. This gives me a net credit to date of $0.18.

I now am looking for PALM to move up and break out of that pennant. When it does, I'll close my trade down with a net profit.

Keep tuned for more updates on PALM.

PENN - update

Okay, I'm a bit behind in the blog here, and there's been a bit of action due to the October Expiration which was Friday 10/16/09. So first is the PENN trade update, here's the chart:

Two days before expiration, 10/14, I bought the October 25 Put Option that I initially sold back on 9/18/09. I sold it for $0.45 and bought it back for $0.05. So, I made a profit of $0.40. I highlighted it on the chart with the blue box.

Two days after buying back that sold option (not highlighted), I then sold a November 25 Put Option for $0.95. I did this in case the stock starts going against me, or if we just kinda drift sideways a bit.

If the stock goes against me, then that option that I sold will go down in value. If the stock just drifts sideways, then Theta will start eroding it's value.

That's it for PENN

New Trade - LVS

Just put on a new trade today - a BEARISH one. I like this because my other positions are bullish and in case this market turns around and starts dropping quickly on us, I'll have some protection with this trade.

I got into LVS, here's the chart:

First of all, we're into earnings season now, so it can be a wild ride. However, the earnings on this stock is not out until after the trading day of November 10th, so we've got some time for this to work.

Looking at the chart you see that it had a nice run up and the high was that black candle. If you just think about what that candle means, along with the huge relative volume that accompanied that day you'll realize that:

1. The price gapped up from the previous day

2. However, after the gap up, it only went a little higher than the open

3. Then the rest of the day it traded down down down

4. This was done on big relative volume

So, by looking at that candle we can see that after it opened, the rest of the day the sellers stepped in and kept selling this stock lower and lower. Then six trading days later the sellers pushed the price back below the recent support level around $18.30ish. The price then dipped down to approx $14.40ish, went back up to that old support/new resistance level and is now looking like it's rolling back down from that new resistance level.

I'm looking for this stock to get back down to the $14.40ish level or lower.

In addition to that price action, I looked at a few other items to help determine the bearish bias I have on this stock, these are:

1. The stochastics indicator is high and is rolling over - pointing to a possible drop in stock price.

2. The Point and Figure Chart on www.stockcharts.com puts the target for LVS at $8.50

3. Stocks in the same industry group are getting weaker as well, such as: WYNN & MGM.

I don't think the stock price is going to drop to my target within 2-3 days, but that would be splendid if it did. I think it'll probably just float down there as there might be some good market strength due to earnings in general. So, I didn't take an aggressive trade.

Here's the trade I entered:

A November Bear Call Credit Spread. I sold the November 19 Call Option and bought the November 21 Call Option for a credit to my account of $0.57 per contract.

The nice thing about credit spreads is that I have quite a bit of flexibility when it comes to price action. Here's some possible scenarios:

A) The stock drops like a rock to $14ish within a few days - I would exit and take profit

B) The stock drifts down to $14ish taking a couple of weeks - I would exit and take profit

C) The stock just drifts sideways between 20 - 15 - I would let time decay kill the values and take profit once I realized 80% of the initial credit (i.e. I could buy back the spread for $0.11 per contract)

D) The stock goes completely opposite of what I thought and blasts through the 19 price that I sold - initially I would have a loss (and then would have to do some other trading to "fix" it)

As you can see, there's flexibility in credit spreads. 3 out of 4 scenarios benefit me, where as if I just flat out bought a put option, then time decay would be working AGAINST me rather than FOR me.

We'll see what happens from here...

New Trade - PALM

I warned you a few days back that we're going to start trading some different stuff and this is the first one.

I'm taking a bullish position in PALM.

Here's the chart:

So here's how I came across this trade. Everyday as part of my trading routine I go to www.finviz.com for basically 2 things: 1) I want to see if there's been any insider trading - specifically insider BUYING, and 2) I do stock searches on there - mostly I'm looking for big volume spikes.

Back around 9/23 or so, I seen on Finviz that there was some MAJOR insider buying on PALM on 9/22. The insiders bought a ton of it at $16.25. Coincidentally, this was the same day as that big white bull candle on 9/22. I did some prior research on PALM and found these exact same insiders bought at the bottom back in March - they know something, hence "insiders".

So, I put PALM on my watchlist. I wanted to make sure that the price stayed above the $16ish mark. This would tell me that $16ish would be a good support level. As you can see by the chart, price did test that area a bit, but support has held.

You'll also know that today we had a close above the most recent prior day's highs - meaning: buying pressure has overpowered selling pressure and it's time for this baby to pop up.

Usually when you get a huge move like PALM did on 9/22, it takes the stock awhile to kinda take a breath and regroup before making the next leg higher. And, I believe we're ready for that next leg up now.

So, today I actually placed a "Bull Put Spread". This is a type of "Credit Spread". If you are not familiar with these type of spreads then please stop here and look them up online.

Briefly, a Bull Put Spread is a type of Credit Spread (I'll get to this later). In this spread you sell a put option and simultaneous buy a lower put option. Sounds stupid, but it works well. You believe that the stock price is going to go higher and therefore both the option you sold and the option you bought will decrease in value. Once they decrease, then you want to buy back the option you sold and sell the option you bought (exact OPPOSITE of what you did when you entered the trade). Still sounds stupid, I know. Stay with me.

When you first entered the trade, the amount that you sold the put option for was greater than the amount you paid for the other put option that you bought. So you got a "credit" to your account - hence "Credit Spread".

Now you want 2 things to happen to help the option values drop: 1) you want price to go higher (bullish) and 2) you want time to keep on ticking by. The sweet part is that you already have #2 covered. If time stops then we got bigger issues than trading.

Remember some time ago I explained Theta and how it increases as we get closer to the expiration date? Well, the trade I'm taking is for the OCTOBER expiration, which is in 8 days. Also, I have 2 weekend days in there as well - remember, Theta happens EVERY SINGLE DAY whether the market is open or not. So, at this point Theta is just smoking right now, these options are losing tons of value every day from time.

So, I sold the October 17 Put Option in PALM for $0.65 and simultaneously bought the October 15 Put Option in PALM for $0.10 which gave me a credit of $0.55. So now, as long as the stock doesn't go completely against me I'll have a winning trade AND Theta is ripping value off those options each and every day.

To close this trade, I'll either buy back the October 17 put and sell the October 15 put, or if the stock price is well above 17 then I'll just let both options expire worthless and keep the entire $0.55.

Here's a screen shot of the broker filled trade:

Conspiracy Theory????

This may sound like some sort of crazy conspiracy theory but just ponder it over, and after reading this just watch your trading to see if you come across it.

Many times you'll feel like the market is "out to get you". You be in a trade, then the price will go against you, it'll hit your stop, you'll get out of the trade for a loss, and then it will turn back around and eventually hit your target!!! This has not only happened many many times to myself but to other traders I have spoken with as well.

My theory is this: there are many small traders like myself (we're called "retail" traders). Most of us have been taught by some sort of educational system - like Investools or similar. Many of those educational systems use similar set ups for entries - like the way I enter. And also, they use similar stops.

So, if there are quite a few people trading the same way and having the same stops (or basically in the same general area) then it would be beneficial to the market maker that IF the price got close enough to all those stops, then maybe the market maker could manipulate the price JUST ENOUGH to trigger those stops. If he/she could do that, then they would realize a great profit from all those stops (your loss, their gain).

I know that market makers can't move the market by large price amounts, but I do believe they can move it a little. And, a little is all they need.

Refer back to the last post with STZ. Look at the candle where I got stopped out. Now, look at some of the candles before that. Do you see how the price stayed above $15.25? Then on the day I got stopped out the stock opened and the price dipped all the way down to $14.77 then it bounced back that same day to close at $15.15. After that day it started trading higher.

Now, if you got into a position in STZ at some point shortly after 9/16/09 don't you think that where the bottom tail of that candle where we got stopped out is located would be where MOST people would place their stops?

When you place a stop in the brokers system, then it's there for the market maker to see. They can see where all the stops are located. And besides that, market makers are PROFESSIONAL traders, they are some of the best of the best - so it wouldn't take much of their market intelligence to figure out where most stops would be.

Go back and look at some charts and see where you'd get in and where you'd put your stops and see if you can find examples like this. Also, just keep this in your mind to see if you encounter this at a later time.

At this point in time, I have no real solid way of beating this repeatedly. But, if you can watch the market every day (even if it's at the end of the day) then maybe you don't put your stop in the system just in case a candle tail would stop you out. Just a thought.

Now, let's talk about Bigfoot...

STZ - closed

Here's a chart of STZ:

We took a loss here. This is about the worst thing that can happen to you in a trade, so we might as well get this example out of the way early so hopefully we won't run into it too much anymore.

The left-most blue boxed candle shows you our bullish entry. The next day was a small candle, then the following day we had a big bearish candle that went against our trade. The big question you should be thinking right now is "Why didn't you sell an option for protection/income?" Good question!!

The reason I didn't sell an option was because the price moved against us so quickly (within 1 large bear candle) that our stop was relatively close. There would not have been enough "room" to move down to capture a decent amount of profit from a sold option. Most likely, if it would have gone down a decent amount just 1 more day, then I would have been out of both trades. Due to the "bid/ask" spread from the market maker I most likely would have been even on the sold option.

After that big down day against us, the price just kinda floated sideways (just like most of the market at that time) and instead of bouncing up, it hit my stop - Oh, and THEN IT BOUNCED BACK UP. Murphy's Law.

You'll find that many times a stock will come down, touch your price, get you stopped out for a loss, and THEN RESUME IN THE DIRECTION YOU THOUGHT. More on this in the next post, but for now let's just concentrate on our loss.

So, on the right-most blue box I was stopped out for a loss. I sold the option back to the market for $2.80.

I initially bought the option for $3.60 and sold it back for $2.80, so my loss was $0.80, not a killer but still a loss is a loss.

PENN - update

Check out our chart:

As a reminder - we got in at the blue box thinking the stock price would go down to our target of $20.75. However, as soon as we got in, the market went against us and we sold an October 25 Put Option for $0.45

Since that time the price has drifted lower. This has made both the option we bought and the option we sold go up in price. So, we have our bought option helping us and our sold option hurting us.

But there is good news and that is - time has continued on and has not stopped, therefore Theta has been working FOR US in our sold option.

We sold that option for $0.45 and we can buy it back today at $0.40. So we've made a simple $0.05 even though the price has gone against us in that trade. Currently Theta is helping us by $0.04 per DAY. Not a huge amount, but if you analyze the numbers a bit this means that Theta is currently knocking off 10% of the value of the option PER DAY (weekends included) even though the price is going against us.

Thanks Theta

Moved

There's been some recent major price action in the market since the last post. Ironically, it was during this exact same time that I moved to a new residence and basically could not trade. Figures. At least I had some stops in place to protect me.

Remember this - when ever you are going to be unable to trade during a specific time period due to: vacation, moving, or whatever - then make SURE that you have your stops in place and can automatically get you out if the market goes against you.

Also, if you are going to be gone for an extended period of time - like 2 weeks or so, then close out your trades before you go. It's better than having an unexpected surprise waiting for you when you are finally be to check the markets again.

Ch-ch-ch-ch-Changes - thanks David Bowie

Alright, time to change our trading style a bit.

As you can tell from the prior posts, I had some losses and am ticked at myself for not "seeing" the problems during my trading. I think I had a "...momentary lapse of reason..." and was too focused on my concrete rules and not letting my subjectivity out to play with my objectivity.

So, from this point forward, I'm going to be more balanced and we're going to have a bit more fun. I'm going to be putting quite a bit more out there to you regarding selling of options and of "debit spreads" and "credit spreads".

From here on, we will also play more with Theta and will work more to "fix our trades".

So, getting ready for some fun roller coaster trading

Time to learn some lessons!

Anytime that I have a losing trade, I ALWAYS go back to see what happened. Most times I somehow screwed something up, once in awhile trades just go against me and there's really not much I can do. But, in any case, going back and analyzing your trades is probably one of the most productive things you can do in order to become a better trader.

So, let's go back and look over our MEE and AGU trades to see where my mistakes were. We'll first look at MEE:

There were 2 problems with our entry. We should NEVER have gotten into this trade in the first place. Yes, it did meet our rules, but you also must look at the entire picture and develop your "trader's sense" before entering any trade.

Trading is definitely like an art. You first must have the foundation and basics, but after that you will find that there are just TOO MANY nuances to build into your "rules". I'll try my best from this point to list what I generally see before getting into a trade and hopefully you'll understand it after time. We are going to still follow our rules, but we'll let the artistic/subjective part of the trading help dictate our entries/management/exits of trading from here on out.

Okay, back to the 2 problems. FIRST, look at that stochastics indicator, particularly the black line. Notice how, on our entry day, that the black stochastics line was going down. When you follow the candle chart that corresponds with that line, you'll notice that during the time period of the most recent high to our entry that the line was going down. This means that the stock was getting weaker, but we thought it was getting stronger - so strong in fact that we thought it was going to break up through that purple resistance line.

Which brings us to problem number 2 - the resistance line. We should have waited for the stock to first break that resistance line and then find an entry. Most times, after a stock breaks a resistance line (or support line) that it will go a little further in the direction of the breakout, then it will come back to that same line it just broke and bounce back off it. This is called the "re-test" of that resistance/support line. That is by far the better entry.

So, those were the problems with MEE - we should have never even gotten into that trade.

Onto the next stock - AGU:

We still entered this at a resistance line, BUT the difference in this one is that at the time of the entry - the stochastics black line had already gone down and was then turning back UP. So, we were good.

The problem with AGU is that when we got up to the highest high on the chart (the end of that blue line) you'll notice that the stochastics line (also marked by a blue line) was basically the same relative height as it was before we even entered - even though we made a new high. When you make a new high, that stochastics should make a new high on it's chart. However, ours did not. That's the first issue - our stock wasn't getting stronger as it went up - it was losing it's momentum.

The second issue with AGU was that when we did make that new high it wasn't done with much gusto. It was done with a "doji" candle. You can look up candle formations online, but a doji candle is one where the buyers and sellers were in equal power. However, up until that time you'll see we had nice, decent size, white bullish candles. This means that the buyers were stronger than the sellers. Once we hit that high, the sellers came in and were equally as strong with the buyers.

With those two issues above, we should have closed out the trade for a nice profit on that high day and just waited to get back into the trade at a later date. But, I did not. Nope, I just stuck to my "rules" and waited. Rules are good, but you gotta let that subjectivity/artistic side come into play.

Finally, while this was all happening, let's look at what the market itself was doing:

I give most of my trades the priority over the market, but you also need to look at the market so you have some idea of what's going on.

I entered BOTH the AGU and MEE trades toward the end of the phase of the market marked by that blue box. Now, applying your new found knowledge from above via the stochastics indicator, what was happening with the strength of the market??

Answer: the market went up and then sideways, BUT at the same time the stochastics was dropping. The market was getting weaker even though it was still trying to stay up there at those prices. Finally, the weakness took over and the market came back down.

If I would have looked at what was happening in the market AND looked at my trades closely, then instead of having 2 losses, we would have had:

1. No trade whatsoever in MEE

2. Profit on AGU

Lessons learned. Keep these in your mind each and every time you look at a possible new trade or a trade that you are already in.

Now, a new week is coming, let's get 'em.

AGU - closed

We took a loss on our AGU trade. I was an idiot for the way I managed it. I made a mistake that I'll show you in a following entry, but for now, let's just look at the charts to see what happened.

As you know, our entry was the left-most blue box. It was a close above the high of the low day (which was the green circled day just before our entry).

We immediately rallied up and made some money - on paper, since we didn't close out the trade.

We then had a quick gap back down and started going lower from there. I sold an October 55 Call Option for $0.35 on 9/24 represented by the red boxed day.

Then on 9/25 the stock dropped even FURTHER and hit our stop.

Here's the breakdown on the trade:

9/15 bought a Jan 45 Call Option for $8.80

9/24 sold an Oct 55 Call Option for $0.35

9/25 stopped out of the Jan 45 Call Option for $6.60

9/25 bought back the Oct 55 Call Option for $0.29

The net of the trade is:

-8.80

+0.35

+6.60

-0.29

-2.14. So, I lost $214 per contract on this trade. SUCKED. I managed this very stupidly and will show you my mistakes in the following entry. Better for you to learn from my financial loss than your own. However, you LEARN BEST from your own financial losses - nothing will sharpen your skills, nor keep your memory sharp as losses!

MEE - closed trade

Well, we got hammered here. I made a mistake, which I'll show you in a following entry, but for now, let's look at the chart and I'll walk you through what happened from the last entry.

As you know, we got in when we had the close above the high of the most recent low day. The most recent low day is the far most green circle. We got in where the blue square is located. We did get in at a resistance area, but we were following our "rules" and got in anyway.

Then, the next day after we got in, the trade immediately went against us in a big and nasty way. We got slapped. So, in order to get some protection, I sold a Call Option. I sold the October 36 Call Option for $0.40. This was sold in the red boxed day.

Now, onto the next day after that:

The stock dropped even further - going even more against us and hit the stop loss, which as at $29.75.

So, we have a loss. A stupid loss that shouldn't have happened, but I'll go over that in a following entry. The good thing is that there was something valuable that you will learn from this that will make you a better trader in the future.

Here's the breakdown of what happened and the numbers:

We bought the MEE Jan. 29 Call for $7.00 on 9/22

We sold the MEE Oct. 36 Call for $0.40 on 9/23

We got stopped out and sold the MEE Jan. 29 Call for $4.40 on 9/24

We bought back the MEE Oct. 36 Call for $0.20 on 9/24

So, the breakdown net is:

-7.00

+0.40

+4.40

-0.20

-$2.40 LOSS. We lost $240 per contract - ouch! At least you can see here even when the trade is going fast and furious against you, you can still help to minimize (no matter how small) the loss by selling an option. By selling the option, we netted $20.00 to help offset our loss. No, it's not a lifesaver, but every bit helps.

MEE update

We'll we got hammered today on MEE:

This is about the worst thing that can happen to you when you get into a trade - it reverses on you big time the very next day. The reason for this was news. This stock was downgraded from "Outperform" to "Neutral", couple that with the huge move yesterday we got the double-whammy. No worries, we're still in the fight.

This is a great example to show you that you never know what's going to happen - because NEWS can really make or break you sometimes and there's just now way to guess what the NEWS is going to be.

It did not hit our price stop nor our 50% value stop so we are still in it.

However, I did sell an October 36 Call Option to offset some of the loss. I got $0.40 for the sale of that option. I'm planning on this either going sideways for awhile and then going back up, or it will just start climbing back up from this point.

But at this point, I've taken action by selling the October 36 Call Option to help out the position.

SPY Crossover

Hey, anyone take this trade I put out there on 8/2/09???

I hope so, because you should still be in it and you have gained 10 points so far!

That's all.

New Trade - STZ

Another bullish trigger today - STZ:

As you can see, a nice uptrending stock that today had a close above the high of the low day - i.e. our bullish entry trigger.

The Big Chart checked out fine, so then I had to go to a longer viewed chart to find the target:

You can see from the horizontal purple line above our current price action where the an old support, new resistance level is located. So our target is that general area - $18ish.

Next we gotta find where our stop would be - this is $0.25 below the low of the low day - which would be $15.03.

Now we can find our risk vs. reward since the price is $15.74. Calculating this out, we find our risk vs. reward is approx 1:3. Anything above 1:2 we like and the higher the better! So far a green light to take the trade.

Now onto the trading screen:

We are looking a the January expiration Calls since these are the closest to the timeline we want.

The highlighted line shows the January 12.50 Calls have a Delta of .88, which is the closest Delta to .70, therefore these are the ones we want. Plenty of open interest, so we're good to buy these Calls. Look at today's volume for this strike - 1 - yep, that's me again. "One is the loneliest number that you'll ever do..."

I bought the January 12.50 Calls for $3.60. Immediately after doing this, I put in my stop order to get me out if the price goes down and hits $15.03. I have another stop at 50% which would be $1.80.

From here, we monitor the position daily - and hopefully get our profits soon!!

On another note: I'm going to keep these posts nice and short and will make them shorter as we go along. This way I can start addressing other items to enhance your trading knowledge. By this point you should be able to basically do these on your own as it's following the guidelines from earlier posts. If you are having a hard time, just go back and look over those posts for clarity. It will get easier and you'll be able to do this quicker and quicker.

Now - let's make money.

New Trade - MEE

We got a trigger for a new bullish entry, this one was for MEE, check out the 3 month chart:

By now you should be fairly familiar with our entries and what to look for when buying an option. You can see above the trigger, which was a close above the high of the low day.

You can also see that we are going up above the resistance area (purple line) as well on this day, and that our Stochastic indicator in the lower part of the screen is below the 75 line, so we are good to go regarding the chart.

I then checked the Big Chart - it was good because it was not in the red.

So, it was time to find our target and figure our risk to reward. Looking at a longer term chart, I figured the target to be approx $45

The target is past support/resistance at the $45 area.

So, I took the price at the time which was $33.30.

The target is $45

The stop is $0.25 below the low of the low day, which would be $29.75

The risk to reward is roughly 1:3 (if you are lost on this, please refer back to an earlier post to figure this). Since I want at least 1:2 then I'm good to keep moving forward on this trade.

I pulled up my online brokers trading screen:

I chose the January expiration options due to the time frame. I then chose the January 29 Call Option to buy. It had a Delta of .71 and had plenty of open interest.

I ended up buying the January 29 Call Option for $7.00

After buying this option, I then put in my stop to trigger at a price of $29.75. My other stop will trigger when the option value goes to $3.50 (50%).

Now all we do is monitor this position daily, we're done for right now.

Market update

Yesterday, Sept 21st, the market had a brief pullback and today the market went just a tad higher.

This has essentially created a bunch of bullish entry triggers.

I'll put up each new trade in it's own post. All our previous current positions are still doing well, so we haven't done anything new with them.

PENN - update

Okay, time to kick up our trading another notch. Up to this point, we had a couple of possible outcomes regarding our active trades - either it would hit the target or it would hit one of our stops. That's a good plan and will work well over time.

But, I like to keep the advantages stacked on my side and sometimes you have to change the plan a little bit to keep the advantage vs. the market.

Look at the chart to see what happened to PENN today:

Let's first review our trade up to now. The stock was in a downtrend, and we entered on our trigger, which was a close below the low of the high day - represented by the blue square.

The next day after we entered, the trade went against us. Then the following day (today), it went against us again!! Curse you market - how dare you not play by our rules! Anyway, I'm not too concerned about that besides it didn't hit either of our stops and it's still under that downtrending resistance line (in blue).

Up until now, we would just have to deal with it and hope that it turns back down and goes to hit our target, or it would hit our stop and we would take a loss. But we now have a new trick up our sleeve - it's called "selling an option".

What does it mean to sell an option? Easy, just as it sounds, you pick an option and sell it to the market. The weird and wonderful thing about the market is that you don't have to own something in order to sell it (this is called a "short"). Where else in the real world can you do this - legally?

Here's how selling the option works, you simply do the same as you did when you bought an option - but rather you pick to sell it instead. Voila', easy enough.

Why do this?

Because you will bring in a premium (i.e. money). This premium will help to offset your loss if the stock continues to go against you and hit one of your stops. Also, remember that options have "Theta" (i.e. time decay) and if you BUY an option then time decay is working AGAINST YOU. But when you SELL an option, then time decay works FOR YOU.

Let's think a bit more about an option in general. You know the option can be bought or sold to the market at any time. You also know that the option will vary in price due to the stock's movement and also time (the more time that's in the option the more expensive it is). You also know that due to "Theta" that the option will decay in the time portion of the option price as we get closer to the expiration date of the option.

Keeping the above in mind, let's think of an example to clarify things:

Let's say there's a market for ice cream cones - this market will buy and sell ice cream cones at any time. So, you go up and buy an ice cream cone and then hang onto that thing for a couple of weeks - you live in Florida and it's hot out there and you don't keep that ice cream cone in the freezer. So, after a couple of weeks, that ice cream cone is a mess - there's basically no ice cream left. So, you sell it back to the market. But the market says, yes we'll buy it but for way way less than what we sold it to you for because it's a ton less valuable now than what it was then. So in that case you were the buyer.

Instead of buying that ice cream cone, you are now going to sell it to the market (yes, you don't have one to begin with, but the market doesn't care and they basically cover you for it). The market says okay, the ice cream cone is worth $5 (it's expensive ice cream) so they essentially front you the $5 via what's called "margin" (like a line of credit) and they buy that ice cream cone from you. Again, it's hot and it's Florida and they don't use a freezer and a couple of weeks later that nasty ice cream cone is now worth $1 and you say okay I'll buy that ice cream cone back from you now to cover my "margin" (line of credit). So, you originally sold an ice cream cone that you didn't have, essentially you were -1 ice cream cones, then you later bought the ice cream cone +1, then you came out with 0. You don't end up with an ice cream cone, you are now even steven. However, since you sold it for $5 and bought it for $1, you made a profit of $4 on the transaction.

Now let's figure out what may happen if we sell an option at this point referencing the chart way above. We'll get into the specifics about selling an option after the scenarios immediately below.

We have a few things that may happen from here:

1. The stock keeps going against us (up in this case) and hits our stop.

We lose money on the initial option we bought, BUT the option that we sold also becomes less valuable (therefore we win money on that one). We will still have a NET loss, but it will be quite a bit less vs. if we didn't sell an option.

2. The stock just trades sideways and doesn't go anywhere for awhile.

We are losing Theta on our option that we bought, BUT the Theta on the option that we sold is really killing the value on that sold option MUCH quicker than the option we bought. So we are NET winning money - or possibly breaking close to even. In either case, it's better than losing money which is what would have happened had we not sold an option.

3. The stock goes in our original direction we thought and hits our target.

We make money on our initial option we bought, BUT we lose money on the option that we sold. HOWEVER, we will still have a NET profit due to the specifics of the option that we sold (to come next).

As you can see, selling an option when the stock price starts going against you is a great way to give you an advantage in the market.

SPECIFICS ON SELLING AN OPTION:

1. You have to have 2 days that the stock price is going against your direction. It DOES NOT MATTER where the price is trading, it only matter that it's going AGAINST your intended direction. So, if you are close to your target, halfway to your target, or the price immediately goes against you (like in our case) then you SELL an option.

2. You want between 20 - 40 days until expiration left in the option you are selling.

3. You are selling the same type of option. So, if you are in a Call (bullish) option, then you'll sell a Call. If you are in a Put, then you'll sell a Put.

4. You want the Delta of the option that you are selling to be .30/-.30 or less.

5. Open Interest - you won't get an ideal open interest, but as long as there's 100 or more, then you are okay.

That's about it.

EXITING THE SOLD OPTION:

Okay, so after you sell the option, you will exit when 1 of 3 things happens:

1. The stock hits one of your original stops - when this happens, exit your sold option (i.e. buy it back).

2. The stock hits your target - sell your original option you bought and then buy back this sold option.

3. The sold options VALUE falls to around 20% of what you ORIGINALLY SOLD it for. Example: you sold the option for $1.00, once the value gets down to $0.20 (where you can buy it for) then you'll want to buy it back.

A couple of final thoughts before moving onto our trade:

1. If you have a few month's left and the stock is just dragging to get to your target, you may be selling an option every month until you hit your target.

2. There's a specific name for this style of trading: "Diagonal Calendar Spreads" Be sure to look these up. I do them a little different than how they will tell you to do them, but it will give you a good explanation. If you can't find these, then look up "Calendar Spread" then look up "Diagonal Spread" - it's simply a combo of both.

Okay FINALLY onto our specific trade.

So, we obviously had 2 days of the stock price going against us. Once I seen this (you must monitor your trades every trading day), I then knew it was time for me to sell an option. I pulled up my broker's trading screen:

First thing we want 20 - 40 days until expiration, the closest was October with 28 days until expiration.

Remember, I want to sell the same type of option that I bought - this is a bearish play, and I bought a Put option, therefore I need to sell a Put option - which is on the right side of my trading screen.

I now need to find an October Put Option with a Delta of -.30 or less. Obviously it's highlighted in yellow, where the delta is -.19, which is the 25 strike.

The open interest in the October Put 25 Option is 8,509 (wow, that's a ton). So we are good there. On another funny note - look at the volume for today, which is "1" - guess who that "1" is - haha that's us, it was "0" before I sold the option.

Okay, next is what to sell it for - this will be the lower price. I always try to get something in the middle if I can for a better entry price. I actually was able to sell it for $0.45 instead of what they originally had listed ($0.40) - so see, it doesn't hurt to try.

So, now we have the original option that we bought and we have this new option that we sold. Now we simply monitor our positions and look for one of the exits (from above) to happen.

Sorry for the stupidly long post - but you gotta know what to do and why to do it.