Rob on Business,
At the risk of a slightly long post I will give you a little insight into how I trade. Understand that there are many different ways to attempt to forcast stock movement. You can decide for yourself to agree or disagree with my methodology. I've been in your shoes and I've traded with your methods. I think that everyone should start that way because you learn very quickly the ins-n-outs of options. Many people say you should paper trade first. Not really my style. Paper trading falls somewhere between theory and real life, but it's sort of like watching the game show "who wants to be a millionaire". It's easy to come up with the answers when there is no pressure and no consequence for mistakes. Day trading is really easy on paper. Much less emotion, and orders are always executed perfectly. That is not real life. In options, a 10 cent difference in fill price on your order could make or break the trade.
Anyway, I'll get off my soapbox after a couple more points. Just to relate to you WHY I trade this way.
The bane of every traders existence is the compulsion to make a trade. You hinted at that in a recent post. No trader wants to be an investor. But to be a SUCCESSFUL trader one has to only trade the best setups in a given strategy. Maybe the person likes earnings announcements (been there done that). Delta neutral trading? Done that too. In each strategy I only choose the best setups. I have a preliminary list of criteria that must be met before I even consider a trade. After that I dig a little deeper and never trade on impulse.
A while back I read the book "Options Course", written by George Fontanills. Everyone in options knows him. I'm not really a fan. He loves positions that allow for unlimited profit potential. So do I, but after killing myself trying to pick the stocks that might allow for that I realized that there are many better ways. To make a long story short(er) I developed a methodology that realied on PROBABILITY rather than POSSIBILITY. In other words, a 80% chance of making 100% gain. Rather than a 25% chance of making a 200% gain. Just throwing out numbers that aren't meant to be analized, but you get the idea. If you want more detail I will explain more accurately in later posts.
Anyway, in regards to DNA, if I were to take a position in it I would use more than this to evaluate it, but I threw out a caution based on some quick analysis. The first thing to notice is that biotechs can be a bit dodgy. Anytime I trade a biotech I am extra cautious. Lost of news on them weekly, both good and bad. Then consider the big boys (institutions and others with more money than me) and how they are trading the company.
On Sept. 1 it peeked for an all-time high at about 95. Then there was profit taking from what has proven to be an outstanding year. On 9/19 it closed below the 50-day MA, and again a couple days later. Notice what happened then, dramatic plunge. Then double bottom at 80 (= great time to get in for a 1-week huge profit). Then a big climb where the only resistence was again the 50-day MA. The next resistence showed up at just above 94 for a few days showing that there might be something to this 94-95 area. Momentum carried it through to its peak after which it settled back to where? Yep, 94-95ish. After 12/14 when it decided to stay below the 95 mark it fell fast then bounced quickly to that same level.
If it closes above 95 for a couple days it will probably be a good call play but it looks like it will take a lot to do it. The $93 is the current 50-day MA. Today it hit it and then bounced right back up. If it closes below 93 I would be looking for a fast drop. $90 is the most recent bottom where it will likely find some support again. If it falls below that we have the beginnings of a bearish trend, that is why I said to reverse the position.
Anyway, I typed it up really fast and the numbers aren't very precise but you get the idea. Any questions, just ask. About verticals. There aren't delta neutral, and they are directional, but they have a built in P/L.
Have a very Merry Christmas. Oh by the way, since you mentioned you are a little new to this, be careful between now and the first part of January. Lots of people on vacation and the trading volumes get all messed up. You'll see a lot of companies making wierd moves on low volume.
