As you can tell from our higher highs and our higher lows, we have an uptrend. We are then looking to place a bullish trade on this stock. As you can see via the blue box, this day we closed above the high of the low day on 6/4/09.
You can't see it from the chart above, but our target is $27.00 and we enter when the price is $24.02. Therefore we're looking for this stock to move about $3.00 up.
So, now we'll look at the specific option characteristics on this screen for 6/4/09:
Let's go through our specific parameters to make sure we get the trade we are looking for:
1) Stock Volume - We have 2.8 million (we want at least 500k).
2) Delta - We have .69 (we want .70 or higher, but the next closest one is .76, so this will work for us - sometimes you have to bend a little here and there).
3) Open Interest - this screen doesn't show it, but we do have more than 500 (you would see it via another view).
4) Bid/Ask Spread - ours is .30 (we don't want to go over .30 - so we're good).
5) Expiration Month - ours is October, which is 134 days away (we ideally want 90 - 120, again sometimes you have to bend a little here and there).
Putting all that together, we can see that the yellow highlighted line shows the best call (bullish) option for October, which is the 22 strike and costs us $3.00 per contract.
We enter this trade by buying that option and then put on our stops.
Our 2 stops are:
1) $0.25 below the low of the low day. In this case it's $22.93 - $0.25 = $22.68. So if the stock closes at $22.68 or lower, then we will get out of this trade and take our loss.
2) 50% of our original investment. $3.00 x 50% = $1.50. If our option price gets down to $1.50, then we'll get out of the trade and take our loss.
The next entry will show you what happened.
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