Tuesday, June 23, 2009

Trade Journal- RUT Bear Call

As mentioned in my original Trade Journals post, I will begin posting trade recaps every week or so of various trade strategies I use. My primary purpose is provide you with a glimpse into my rationale for choosing strategies as well as timing my entry. I've often receive questions pertaining to my thought process for certain trades, so these posts will allow me to elaborate.

With the market weakness we've experienced this past week, I wanted to highlight a July bear call spread on the Russell 2000 Index (RUT) I placed on July 16th.

June 16th:
TRADE SETUP: After exhibiting slowing momentum and basing sideways, the RUT finally broke below support of the base. After breaking support(517 area) on Monday (15th), it experienced an intraday bounce back up towards resistance on Tuesday morning. I used the intraday bounce as an opportunity to enter OTM bear call spreads.
STRATEGY: Sell a short term, OTM July 570-580 Bear Call Spreads for $1.00

Net Credit = $1.00
Max Reward = $100
Max Risk = $900
Probability of Profit = 1 - .15 = 85%

TARGET:Buyback call spreads @ $.20 or better
TRADE MANAGEMENT: Close trade if RUT breaks above resistance (535)
Did I plan my trade & trade my plan? - Yes
Did I maximize my gains & Minimize my loss (to a reasonable extent)? - Yes- Closed position when hit profit target


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