This past week we saw some vicious selling in last years's high growth momentum stocks. The selling started in the biotechs (BIIB, CELG and REGN) and later spread to many of the other big momentum stocks like AMZN, PCLN, LNKD and TSLA to name just a few. Nothing tells the story as clearly as this past week's wild price action in Priceline - PCLN.
Fortunately, the Range Band indicators does an excellent job of telling you when to green turns to red. That happened with Priceline back on 3/21/2014 when the price closed below the lower range band on the daily. For more information how to construct the range bands, see my prior post on the Range Bands indicator Range Bands Indicator.
As to how I traded this one, I bought the bounce off the bottom on a bullish crossover on the 39 minute range bands. Specifically, I sold the 1997.5/1200 put credit spread for a credit of $1.10. I did 5 contracts so the max gain was $550 and the max loss was $700.Almost immediately the trade went completely against me max in the money and traded down and closed at about 1190. The next day it was off to the races and the stock took off and in the next day or so traded as high as 1265. At that level, I figured the bottom was in and this position would go out at max profit without too much trouble.
Unfortunately, it didn't turn out that way and the stock came in hard later in the week and was threatening my short strike by trading down to the 1210 area. Once it broke 1210, I figured I would cover the short side of the spread at a profit and just stay long the 1197.5 puts. So I bought back the short contracts for $4 taking a considerable paper profit on the trade, but still facing the loss on the long puts. At this point, I was lost as to how to close this trade at a profit unless the stock tanked well below the level of my long puts at 1197.5. Immediately the stock rallied off the low and trade as high as 1225 and I was facing a complete loss on the puts. Not wanting them to expire worthless and face the loss, I closed them for $1 each not realizing at the time that I had opened the spread for 1.10 credit, and just closed it for a debit of 3.0 thus locking in a higher than expected loss on this trade.
As if that wasn't annoying enough, PCLN immediately sold down hard and closed the week out at 1178 and had I held onto the puts that I sold for $1 earlier that day could have been sold for 19.5 later that same day for a potential profit of $9,700. It was a frustrating experience and goes to show how a good trade can go bad due to mismanagement. In the end I completely misjudged the degree of volatility in PCLN. I expected it to hold the treeline at 1200, and instead, it sliced right through it to the next level of support. Everything was not a complete disaster this past week as I had successful bearish directional and spread trades in LNKD.
All this got me thinking about how I select my trades, and it came clear to me that the best trades are in the direction of the trend on the 39 minute, daily and weekly time frames. I already have an excellent trend indicator with the range bands. So all I need to do is put these multi-time frame views together into some type of dashboard. I started working on getting this going on the Radarscreen in TradeStation, but came up short.
More to follow and enjoy your weekend. Get some rest, you deserve it.
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