W&O on CREE

The other day I was reviewing some upcoming trends on RTT and decided to buy 100 shares of CREE stock with the intention of doing W&O on it. I couple of trading days after I purchased the stock the company released news of a new LED consumer light bulb. The next morning the stock was up about 15-17% in response to the news. I had actually planned to wait for the price to come up some and buy another 100 shares before selling some call contracts against the position. With the large gap up I chose not to buy more and rather deal with the shares I owned then.

I know GW talks a lot about the piano, but over the last couple of years the piano hasn't helped me a lot with W&O trades. I think I may not have been actually following all of the rules regarding the entry point though.

So I thought about what I should do and decided to just sell out of the position since I had made over 5% for the month already. A few days later I was listening to the CDs again and noticed that GW recommended selling deep in the money calls in such a situation to protect yourself down to a pretty low dollar value and pull some money back into your account immediately. I suppose if I would have done that I could have banked a little bit of time value cash in addition to the intrinsic value and allowed my mind to rest for a couple of weeks (or a few days if I would have used the Weekly options). I actually don't know that the time value would have really been much different with the weekly expiring 2-3 days later and the monthly expiring 9-10 days later. It doesn't seem like option prices are very high now. I was concerned about a pull-back (maybe that's part of the reason you sell the DITM options - to maximize earnings).

In this case I was lucky, not good with the purchase of the stock. Sometimes you are unlucky even if you are good, so I'll take it and try to keep my emotions in check.

I very curious about what anybody else thinks about a good way to exit this trade keeping in mind the goals of W&O and also regarding the thought-process I tried to express in this post. I know we tend to talk a lot about the trading leg in this forum, but I want to focus more energy in the second leg at this point while I am still practicing the Trading Leg. So any pointers or examples of successful W&O trades (or Printing Press) would be very appreciated. Since GW apparently doesn't do the Success E-mail any more, I consider this forum to be the substitute.

Thanks.



Edited 1 time(s). Last edit at 03/10/2013 03:29PM by Kars.

I don’t buy stocks yet but looking at your purchase (not knowing when you bought it but owned it on the gap up) you could have held on to the stock. The general rule of thumb is trade in the direction of the gap so I can only believe that would also mean hang on to a stock that gaps up and get rid of one that gaps down. If the gap up starts to turn against you then sell.
You however had a double gap up. One on 1/22 -1/23 and then 3/4 - 3/5.

The money flow still looked good in this stock as well as the on balance volume. All you moving averages on the Daily look strong.

In doing W/O, I would not have bought more after the gap. I would have waited out the gap to see if it would continue going up and looking at the 55 chart if the stock fell below the 20 moving average I would have sold the $55 calls and then after expiration Friday I would sell my stock.

However let me add that hind sight can sometimes be a horrible thing! All depends on which hind you are looking at!
BUT….you are never wrong to take a profit……….never!!!



Edited 1 time(s). Last edit at 03/15/2013 01:06PM by Darcy.