LNKD

LINKEDIN
08/14/2013 O STC LNKD SepWk1 240 Put 4 $9.50 $14.95 $3,784.84
08/14/2013 O BTO LNKD SepWk1 240 Put 4 $8.00 $14.95 ($3,215.09) 569.75
Total Realized Gain/Loss for LNKD $569.75
Total Realized Gain/Loss $569.75

Here's what I saw

1.HRFP on GW's 55
2.Used 5 and 3 E chart for entry
3 Red candle formed @ 10:00 entered on second red candle formation around 10:03 ...see 3 E chart when 10:03 candle didn't close above 20 moving average I got in

This time I used a GTC...got a lot going on today @ home so I estimated the possible area LNKD would move based on 50 moving average on the 55 GW chart. I estimated movement to about $235...divided that number by 2 and added that to the current area my option was in. I accepted $9.40 becase it wouldn't accept $9.45. (235 divided by 2 = 117 added $1.15 to the current option my trade was innot the one I bought at)

I went to read Briefing saw my LNKD moving violently so went to check my trade and I was out.

This is for sure a shark's tooth market....GW students understand this term!

See ya'll later...Good trading.



Edited 1 time(s). Last edit at 08/14/2013 10:16AM by Darcy2.

Congrats on another successful trade, Darcy.

Quote
Darcy
I estimated movement to about $235...divided that number by 2 and added that to the current area my option was in. I accepted $9.40 becase it wouldn't accept $9.45. (235 divided by 2 = 117 added $1.15 to the current option my trade was innot the one I bought at)

When trying to estimate option price, I will typically multiply my estimated stock movement by the current option Delta. For instance, a near-the-money option might have a Delta of 0.53; so, if I expect the stock to move $4.00 I would multiply 4 x 0.53 for an estimated option movement of $2.10.

However, the method you used above is completely foreign to me. Would you mind explaining a bit more about how that works?

DARCY2 - I estimated movement to about $235...divided that number by 2 and added that to the current area my option was in. I accepted $9.40 becase it wouldn't accept $9.45. (235 divided by 2 = 117 added $1.15 to the current option my trade was innot the one I bought at)

I use major moving averages for exits. Because LNKD was below the 20 moving average on my 34, 21, 10, and 3 I knew the next area it would hit would be the 50 moving average on the 55 chart. The 50 moving average is a strong supporting or resisting average.

Note that I entered when the candles did not go through the 20 moving average on the 3 chart. This signaled me that the 20 was a strong resistance for any futher upward movement thus LNKD would go lower and there was no doubt in my mind about that.

Examing the 55 and the daily chart lead me to believe LNKD would fall to the 50 moving average on the 55 chart and highly likely that it would not go much lower than that. (See gap on Daily chart)


Now how did I come up with the price for my option? I know nothing about Delta etc. I really do not like things to complicated so here's what I did and what I do.

I took the price where the 50 moving average was showing on the 55 and the gap on the daily charts. That price was about $235.00 and divided it by 2. Why 2? Because I believe many options hit within that 1/2 price range of the stock when it hits a moving average and the current price of the option before the stock hits that moving average divided by 10.

HALF the price of $235 where the moving average was came to $117.50 Which meant to me to me that my option would move another $1.17/$1.18. (10%). I added $1.15 to the current area where my option was; which was $8.35 and placed my GTC.When I am setting a GTC and I see the same set up as I did with LNKD; that is the process I have followed. I like to set my GTC a little lower than my figures so I can make my money and run.

If I am not setting a GTC which I admit is seldom because I can watch the market all day I do watch the 20, 50 and 200 moving averages as to exits. I also watch sideway moves, moves pulling away from the bollinger bands, or out of the bollinger bands for entries or exits.

Hope that helps.



Edited 1 time(s). Last edit at 08/14/2013 03:13PM by Darcy2.

Thanks for your willingness to share knowledge. Your explanation of how you use the moving averages is easy to understand and I've been using them abut 85% the same as you described.

Quote
Darcy
I really do not like things to complicated so here's what I did and what I do.

I took the price where the 50 moving average was showing on the 55 and the gap on the daily charts. That price was about $235.00 and divided it by 2. Why 2? Because I believe many options hit within that 1/2 price range of the stock when it hits a moving average and the current price of the option before the stock hits that moving average divided by 10.

Having read McMillan's book "Options as a Strategic Investment" many years ago, the option "greeks" such as delta and theta make perfect sense to me. However, your pricing method still confuses, but intrigues me. I tried to do a google search for "option price" and "half stock price" or "half of moving average price" but am not able to find another explanation of your method. Is this something you've figured out through your experience, or perhaps, something in one of the option books?

I always enjoy learning new things about the market and would very much like to read up on this more if you can point me in the right direction.

I learned this all by myself. You have to have moving averages matching in two charts or a moving average in one chart and a bollinger band in another. The higher the chart the stronger the possibility of that move.

I do not know why it works but that it has.