Jeff Bailey : 2/2/2008 3:54:41 AM
(See below starting at 12:49:26 AM)
Now the fun/challenging part! ... OK, we've got our bar chart Link and we've got some levels to begin assessing price action to. We understood the stated hypothesis and can monitor the techncials to see if they're still in play. What's your conviction? Do I simply walk away as is, or try to get "break even," or better yet, get things "break even" and leave some upside?
See the conventional 38.2% at $24.50? That's darned close to the $25.00 stike of the sold covered Feb $25 Calls.
See the 50%? That's darned close to the $25 + $1.05 = $26.05 the trader sold.
I've tried to teach traders the "close a level" observation, for an observation of conviction. See anything on the bar chart that ever had any significance at $28.16. Not just as we "know it now," but in the past.
$28.16 has tended to be a decent support and resistance level hasn't it?
My "once above never 2 below" rule would not say "YHOO SHOULD NOT close back below $24.50, which is 2-levels below $28.16. Go ahead, do it with YHOO on the way DOWN with the conventional retracement as it is currently, but say "once below, never 2 above." Heck, on the way down you could say... "once below, never 1 back above."
As a trader, or investor begins to take in these observations, there's almost a "peace" that overcomes them. As long as they HAVE NOT OVERLEVERAGED
Trader's Options A) The trader doesn't want to take the loss of $2.23/contract, and I might be able give reason later as to why it is worth working on things and option "B"
However, option B will have the trader reviewing his conviction, or the hypothesis.
Option B: Since the traders holds two (2) of the Jan09 25 LEAPs Calls (VYH-AE) it may be worth it to "roll out. One option may be to buy back the Feb $25 Calls (YHQ-BE) and take that loss. Then sell covered either the April $30 Calls (YHQ-DF) at current $1.17 bid (obligates to sell YHOO at $30 + 1.17 = $31.17 see conventional 80.9% of $31.12, or sell covered the April $32.50 Calls (YHQ-DZ) for current bid of $0.80. That's an obligation to sell $32.50 + $0.80 = $33.30.
So, that gives a trader some additional ideas and utilizes the tools and techniques I try and teach.
What about the "bull fit 38.2%" retracement. It looks like $30 could still be in the cards for YHOO, but can it ever do $50 by Jan'09 expiration? Is it worth the effort, or does the trader "walk away."
YHOO has to get above $31.12 and the Point and Figure chartist sees that resistance, as does the conventional retracement chartist. But $50?
YHOO PnF chart Link ... where today's reversing higher PnF buy signal at $23.00 and resulting column of X (may still be under construction) has the bullish vertical count to $49.50