In my prior post 4 Horseman of Biotech I covered 4 top performers leading the back in the Biotech industry. This past week, 3 of the 4 closed at new all-time highs on a raft of good news as follows:
Biogen IDEC (BIIB) gapped up huge on Friday on news that the European Medicines Agency approved their multiple sclerosis drug along with 10 years of regulatory exclusivity
Celgene (CELG) also gapped up but to a lesser extent when news from the same European regulator expressed a positive opinion on their treatment for pancreatic cancer paving the way for full approval later.
As for how I traded it, I went long some BIIB stock and call options when the stock broke out back on 10/28/2013. Unfortunately, the stock only went south from that point and I had to close the options out at a loss. I held onto the stock however, and added more plus added the weekly 240/245 PCS when it crossed 240 after bouncing off support after a pullback similar in magnitude as the prior pullback on the daily chart. That trade worked spectacularly well as shown the above chart and I'm still long the stock. Its a classic case where the options fail but stocks succeed since they are much more forgiving.
As for other trading results, it was a rocky week, but turned out okay in the end. Along these lines, I learned a few important things about the rhythm of trading weekly options and it goes like this:
- Friday is a day for closing out positions which expire that day. Do not add new positions on Friday.
- Monday is a NOT day for trading. Let the market declare itself. Do not jump on any price moves, particularly in the early part of the day, as they will likely retrace or reverse later in the week
- Tuesday - Thursday are the days to put on new positions which expire that Friday.
- Friday is a day for closing out positions put on Tuesday through Thursday. Rinse and repeat.
What I have observed during weeks of options expiration is that there is always at least one day of heavy selling. And since every week is now options expiration week, stocks that look great on the prior Friday and the following Monday almost always give you a better entry point later in the week. Once of John Carter's favorite strategies, is wait for the end of a day or 2 of heavy selling, then sell a spread 1 or 2 SD's away from the market. At the time, it looks like a scary trade, and you are risking $4.50 to make 50 cents, but it almost always works out and becomes "free money" as JC would put it.
Things worked out for me on the long side the week because of good solid closing moves in the stocks I was trading, specifically, AAPL, MA and NFLX. But at one point in the middle of the week, these put spreads were fully in the money against me. Had I waited for better entry points, I could have had a much less stressful week and made just as much if not more money.
A few other developments:
- In an attempt to squash Small Account Syndrome, I have relocated some funds from E*Trade over to TradeStation where I will now have a full 100K account to trade. I'm working on a trading methodology called The Ultimate Trading System which is a techno-fundamental combination of what I have been doing for years anyway but reduced to a set of fully-defined rules.
- I had a breakout week in my ThinkorSwim account and I have now earned over 9% year to date in that account which comes to just about 7.8% after commissions. That exceeds what I have returned on the TradeStation accout over a 11 months of trading. I have to be careful to not give back those profits and keep a clear head.
Overall my option trading has come a long way thus far in 2013 and I'm starting to learn the secrets of how to pull money out of the options market with some regularity. The learning never stops in trading however, and perhaps that's one of the reasons why I enjoy it.
So wait for those entry points traders and for those of you celebrating, have a Happy Thanksgiving.
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