Vertical Spreads for Aggressive Growth

Everything is holding relatively still lately. Still no reason to bail on my BBY or IBM.

So far, my predictions on PALM have been accurate. If it holds here then I'm expecting a pretty strong move up. It will likely hit some resistance at $40 but a good enough move will send it through. On the other hand, if it breaks throug the 20SMA then I don't think there is any way it will get through the 40 mark.
 
How are you playing your PALM forecast? Do you already have a position on it?
Quote from Cache Landing:

Everything is holding relatively still lately. Still no reason to bail on my BBY or IBM.

So far, my predictions on PALM have been accurate. If it holds here then I'm expecting a pretty strong move up. It will likely hit some resistance at $40 but a good enough move will send it through. On the other hand, if it breaks throug the 20SMA then I don't think there is any way it will get through the 40 mark.
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Quote from cnms2:

How are you playing your PALM forecast? Do you already have a position on it?
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I haven't got a position yet. I wanted to make sure that it was going to hold above the 20SMA. This stock really likes the 20SMA. It came close to breaking through today, but was unable to close below it. Of course, it got a little bit of help from the market turning around. My only concern is the resistance at just above 40. I'd like to do a bull put on it but if I'm going to get stopped by that resistance then it is better suited for a single leg play with a trailstop.
 
To give a little bit more of a peek into my head. It had a lot of trouble with the $40 mark in 2004. It has already demonstrated this year that the same resistance is there.

Given that it has $5 strikes, it makes it a little tough to play an ATM vertical. I don't like ITM bull puts. That leaves me with two choices. Long calls or don't play it.

What's your take on it?
 
I never traded PALM, and I looked at its chart only last week when it closed just under $40, then today after you asked about my take on it.

As yourself, last week I thought that PALM might retrace, or might break out, and neither scenario looked inspiring. Today, after what seemed to be a bottom, we have a better entry point with an ok reward / risk ratio.

I would try a long trade (earnings scheduled for 3/9) with a target of 40-41.5 in 5-10 days. My initial stop loss would be 34.75-35, but I would close my position sooner if it went against me.

IV is high at 57% (one year range is about 35-65%), and the history shows IV increasing into earnings, then dropping abruptly. So it is likely that in the next 5-10 days PALM's IV will stay high or go even higher. This is slightly unfavorable to a 35/40 bull vertical.

I think a straight call is better. For the same money invested :
- March 35: performs better for an increasing IV, and its absolute risk is smaller
- March 30: performs better for a decreasing IV, but its absolute risk is higher.

If you compare these two calls you have a 43/83 ratio spread (at Friday close ask prices).
Quote from Cache Landing:

To give a little bit more of a peek into my head. It had a lot of trouble with the $40 mark in 2004. It has already demonstrated this year that the same resistance is there.

Given that it has $5 strikes, it makes it a little tough to play an ATM vertical. I don't like ITM bull puts. That leaves me with two choices. Long calls or don't play it.

What's your take on it?
More...
 
Long calls/puts are definitely the best choice on this issue. It has pulled back to the 20SMA today. Probably a pretty good time to get in for a quick profit, and I could use another bullish position. I'm going to go ahead and get in on it. I'm expecting support at 36 to hold.

Today's Action

BOT 1 PALM MAR 35 call @ $3.40

Year to Date P/L

Account Value: $10,048.00

YTD Gross P/L: 90.00

YTD Commiss: 42.00

YTD Net P/L: 48.00

YTD % P/L: 0.5%


Quote from cnms2:

I never traded PALM, and I looked at its chart only last week when it closed just under $40, then today after you asked about my take on it.

As yourself, last week I thought that PALM might retrace, or might break out, and neither scenario looked inspiring. Today, after what seemed to be a bottom, we have a better entry point with an ok reward / risk ratio.

I would try a long trade (earnings scheduled for 3/9) with a target of 40-41.5 in 5-10 days. My initial stop loss would be 34.75-35, but I would close my position sooner if it went against me.

IV is high at 57% (one year range is about 35-65%), and the history shows IV increasing into earnings, then dropping abruptly. So it is likely that in the next 5-10 days PALM's IV will stay high or go even higher. This is slightly unfavorable to a 35/40 bull vertical.

I think a straight call is better. For the same money invested :
- March 35: performs better for an increasing IV, and its absolute risk is smaller
- March 30: performs better for a decreasing IV, but its absolute risk is higher.

If you compare these two calls you have a 43/83 ratio spread (at Friday close ask prices).
More...
 
WOW! Talk about bad timing on the PALM calls. I haven't quite hit my stop yet, but it is getting there. Nothing like getting in at what seems like a support and five minutes later having the issue break through and run against you.:mad:
 
This is why I don't try to catch bottoms and tops. Most times I'm going after 1/2 to 1/3 of a swing in the same direction as the next longer time frame.

When I forget about it, the market kindly reminds me immediately.
Quote from Cache Landing:

WOW! Talk about bad timing on the PALM calls. I haven't quite hit my stop yet, but it is getting there. Nothing like getting in at what seems like a support and five minutes later having the issue break through and run against you.:mad:
More...
 
Quote from cnms2:

This is why I don't try to catch bottoms and tops. Most times I'm going after 1/2 to 1/3 of a swing in the same direction as the next longer time frame.

When I forget about it, the market kindly reminds me immediately.
More...

Point taken.:D
 
Took the opportunity to get some SPY bear calls. Bernanke set to share with us his monetary policy tomorrow. That could be interesting.:D

Today's Action

Sell 4 SPY MAR 130/132c @ 0.5

Year to Date P/L

Account Value: $10,036.00

YTD Gross P/L: 90.00

YTD Commiss: 54.00

YTD Net P/L: 36.00

YTD % P/L: 0.4%
 
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