Christmas Trade-6 Weeks

November 28, 2018 | Filed under: Financial, Stock

OK. This is one of my favorite trades. And It is just around the corner.

Disclaimer: Past performance, does not guarantee future performance. Investment, and Options trading has RISK. If you do not know what you are doing, you may lose all the money you invest. GET Educated!

First a little history, and then execution. The Dow on average goes up 9% over of the decades from Dec 1 to mid January. Many folks suggest this is a function of the retail market (Christmas), and 4th quarter earnings (companies paling their financial accounts, to look good at year end. I really don’t care why. But the trend is pretty regular.

Second, we are going to take advantage of this trend. And trade directionally, with the market. The trend is our friend. We are not going to play the Dow directly, but play the DIA. We are not going to buy the DIA directly, but use LEVERAGE to get a better rate of return. Here are the mechanics of the TRADE:

  • Dec 1 we are going to buy an in the money (1 strike price), single call option.
  • The option has to be at least 90 day or more. Likely March or April option. This is ensure in the 6 weeks, or 45 odd days, there is not a lot TIME decay of the option. If you did not understand that, you likely need further education.
  • On or about Jan 15th we will sell the option.
  • We are going to protect our investment, with a hard stop. If the market does not go in the direction we desire, we are going to automatically get out. Therefore, reducing the risk to us. The hard stop will be a support level on the DIA.
  • Dec 1 is Sat. So, I may play this pattern on Friday or Monday.

Third. This is Major Caution. This is a seasonal play, based on the past. BUT the market is a little volatile, and we had a big down turn. Maybe a cup pattern forming. Maybe just bounce of the low forming a double bottom. I believe current trends, patterns, and technical patterns, are much more important than pasted seasonal patterns. So, watching the market with great interest. The 255 support, and resistance, might be the breaking point. As it looks right now, which may change Friday or Monday, when I trade. I will:

  • Nov 30. Buy a single options. Perhaps the March 255.

Let you know more, when I take the position.

 

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