Here we go - BDK

I've had BDK on my watchlist for awhile now.  It's been on there because it has been making higher highs and higher lows - so we have an uptrend.

Here's the 1 year chart:

You'll notice on this 1-year chart I put on a Fibonacci Retracement, which is shown with blue lines.  I know, you're probably saying what in the heck is that??  It's a tough one to explain, but the reason I use it is solely because so many OTHER TRADERS USE IT - especially the big money (hedge fund managers and the like).  It shows them levels to where the stock might encounter support/resistance.  For me, I'll use it the same way which helps to determine a target for me.

Here's a link to give you more info on Fibonacci Retracements.

The horizontal purple lines show support and resistance, and of course you'll see the higher highs and higher lows via the green circles.  

Here's a 3 month chart to help see our trade better:

Notice today's close was above the high of the most recent low day in our uptrend.  This is our trigger to get into a bullish trade.

I've put a couple of indicators on here.  They are below the chart.  The first one is called the Money Flow (MF).  This basically shows you the money coming into/out of a stock.  As you can see, money has overall been coming into this stock - which is making it rise.

The bottom indicator is a Stochastic.  Which basically tells you if a stock is overbought (i.e. has had many buyers and could be due for a pullback) or oversold (i.e. has had many sellers and could be due for a bounce up).  Looking at this indicator, you will see that we are below that red 25 line - this means we are oversold and according to this indicator we should have a bounce coming sometime soon.  

Indicators are useful but remember that they are only secondary helpers to your trend, support and resistance.  PRICE ACTION DISCOUNTS EVERYTHING ELSE!!!!  (Follow your chart and what it's telling you).

Here's a link for info on Money Flow.

Here's a link for info on Stochastic.

Looking back up at the first chart you will notice that I do have a level of resistance overhead around $46.  My target would be the next level of resistance after that around $49.  When I got into the trade, the stock was trading around $43.46, so even if we hit the first level of overhead resistance at $46 and stay there  - I'll still have a winning trade.

Before moving forward at this point, I want to make sure that I'm skewing the odds in my favor.  I don't like playing fair with the market.  It doesn't play fair with me, nor anyone else, so I gotta make sure we play by my rules or I don't take the trade.  How do I do this???  By making sure that I can make more money than I can lose, this is called the "Risk to Reward Ratio". 

The Risk to Reward Ratio takes what your monetary risk is and puts it in a ratio to what your possible monetary reward is (your target is your reward).  In this example, my risk is my entry minus my stop.  I entered at $43.46, my stop will be $41.81 (see below for more explanation).  So, $43.46 - $41.81 = $1.65 is my risk.

To figure my Reward I need to take my target minus my entry.  $49 is my target, $43.46 is my entry.  So, $49 - $43.46 = $5.54 is my reward.

My Risk to Reward = $1.65 : $5.54 or roughly 1:3 

I'm risking $1 to make $3, and that's how you skew the odds to your favor.  I NEVER take 1:1 trades.  I MUST HAVE 1:2 or higher, preferably higher, the higher the better.  

After seeing this trade set up and the trigger that happened today, I then went to find which option would be best.  Here's the screen shot of that:

Here's what I was looking for:

1.  Time - I want 90-120 days until expiration.  In this case I could either go with November or January Call Options (since we are bullish/uptrend).  I chose November, but either one would be good.

2.  Delta - I want as close to .70 as possible.  The 40 strike price's delta was .69, which was the closest one.

3.  Open Interest - I "ideally" want 500 or more.  The 40 strike has an open interest of 910.

4.  Bid/Ask Spread - I want $0.30 or under.  The 40 strike had a spread of $0.20 ($5.40 - $5.60).

So, the November 40 Call Option on BDK was my choice for taking this bullish trade.  I got filled at $5.50.  I always try first to get filled in the middle of the Bid/Ask.  In this case I got it.  Sometimes you won't get filled and you'll have to adjust your offer in order to get filled.  This is something that is worth your time to try.  Just put in your offer between the Bid/Ask and leave it there for a few minutes, if you don't get filled, then put it at the Ask price.  In this case, it saved me $0.10 - "a penny saved".

After getting filled, I then put in my stop order.  In this case the low of the low day was $42.06, so I subtract $0.25 from that which gives me my stop of $41.81.  So, if the stock price hits $41.81, then I will automatically sell back this option to the market.  My other stop is $2.75 (50% of $5.50).

From here, I simply wait.  Either my target is going to get hit, or one of my stops is going to get hit.  However, there is one other thing that may happen, and if it does then I'll address it at that time.  We've had enough for this entry.