AGU Trade

Okay, let's get onto this now after our Big Chart discussion. By the way AGU is in the Agriculture Chemicals industry group which is currently at 36/Yellow on the big chart. This is going to be a bullish trade and my rules say as long as my bullish play is not red on the Big Chart, then I'm good on that part. Game on, here's the chart:

First things first - what kind of trend do we have? Higher highs and higher lows - therefore we have an uptrend, which is BULLISH.

As you know by now, in an uptrend I'm looking for a close above the high of the most recent low. Today in AGU we closed above the high from the most recent low, which was happened to be yesterday.

The purple line represents a level of resistance, which is where we are at currently. We've been around this area for a few days and I'm basically taking the stance that we are going to break right on through that bad lad.

After we break out of resistance, I must determine my target, otherwise how am I going to know when to get out. I also must know my target because without it I cannot determine my risk to reward ratio (which is very very very very important - very).

I have to go out to a longer chart, here's a 2 year chart:

You will notice another horizontal line of resistance at approx 59ish. Remember, support and resistance are AREAS not exacts. So, we'll put our target at 59.

Our stop needs to be placed at $0.25 below the low of the most recent low. The most recent low's (yesterday) low was $49.06, we subtract $0.25 from that and get our stop, which is $48.81.

When I bought the option, the stock was trading at $51.25. These are all the numbers I need to determine my risk vs. reward.

Reward = $59 - $51.25 = $7.75

Risk = $51.25 - $48.81 = $2.44

So my risk vs. reward ratio = 2.44/7.75 = approx 1:3

I'm risking 1 to make 3. That's what I'm talking about, looks good.

All is looking good, now onto the exact Call Option to buy, let's look at the trading screen:

Looking at the yellow highlighted line:

I chose the January expirations for my Call Option. There's 122 days left until expiration. I ultimately want 90 - 120, and these January options were the closest ones.

Once I figured on the January options, I then moved to the correct strike price. Remember, I want a Delta of at least .70. As you can see, the January 45's have the Delta closest to .70 with a .73. Voila'

Finally, time to click the buy button. I tried to get this option a little cheaper (I always do, you never know when you'll get a fill for cheaper than what's it's listed - besides it doesn't cost anything to try). I could not get it cheaper than what it was listed for and bought the January 45 Call Option for $8.80

After buying that option, I immediately put in my stop. I set my stop to sell my option if the price of the stock hits $48.01 or lower. (It's not gonna do that - it's gonna be a winner you know!!).

So from this point, we simply monitor this trade every day. We'll also keep looking for other trades. I'd like to get a bearish trade. Even though we have been going up, I also like to get something going the other way to balance out my portfolio.