Deal making and strong earnings reports are continuing to drive stock prices higher and higher without pulling back. As such we need to honor our ordering rules and exit the DIA bear call spread.
DIA Position Update
DIA closed $121.35 on Monday â€“ the February position is approx. $2,000 the red
DIA is priced ABOVE its current 14-day EMA (see DIA chart down below)
DIA is trading ABOVE its 20-day Bollinger Band SMA (see DIA chart)
DIA is ABOVE its 50-day simple moving average (see DIA chart)
DIA is also ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is extremely bullish (See DIA chart)
Moving Average Convergence/Divergence (MACD) is bullish (See DIA chart)
The January 20th Couch Potato published a February expiration month call spread
This spread is approx. $2,000 in the red (see tables below)
$120 strike price short call delta is .7233 (28% probability this position will be profitable)
DIA Risk Analysis
The DIA has triggered the exit rule for getting out of the bear call spread and we plan on exiting the trade on Tuesday. If prices have NOT pulled back significantly in the first hour of trading then we cut our losses and execute the closing trade shown above. If prices DO pull back then we will try to do the trade when the price is near an intraday support level â€“ obviously the idea is to try to get a better closing price.
The plan is to exit the call spread on Tuesday. We don't want to get assigned on any of the short call contracts and we definitely want to limit our loss.
Regular Couch Potato Readers are probably used to seeing a trade adjustment to close out losing trades and offset losses. This time we could not identify an adjustment that we could do in the February expiration month that would justify the risk. We will tweak the trading plan and then publish the March trades..
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.