Active-Trader - Market Maker Move - Part 2

Welcome back, Active Traders and Wealth Builders.

In my prior post Market Maker Move I talked about trading earnings reports using Options.  Since then, I've picked up a few of the finer points of this trade, and used them to good effect this past week.  So let's go through what happened and what was learned from the experience.

First recall that we start this trade by getting the "Market Maker Move" from the Thinkorswim platform.  This appears in the upper right on the Trade tab in yellow next to the text MMM. The MMM is essentially the sum of the premium of the at the money puts and calls and is the amount of the move expected up or down from the closing price.

The gist of this trade it to sell a call spread above the market and a put spread below the market.  In both cases, the short strikes are outside the Market Maker Move.  In the above example of BIDU, I sold short the 182.5 calls and bought the 185 calls as protection and sold short the 162.5 puts and bough the 160 puts as protection.  In the graphic above, the short strikes levels are in red, and the long strike levels are in green.

With this trade, you want the stock to close the week inside the short strikes, so you can keep the entire premium collected on the short strikes and take a complete loss on the long strikes.  In this case, I took in a credit of 1.17 for a max loss of 1.33.  I try to keep the credit greater than about 30% of the spread.  30% of 2.5 is 0.83 so this premium was considered healthy and worth taking the trade.

So what happened in this trade?  BIDU reported good numbers and in the after hours session the stock shot up and traded above my short strike at 185.  So this trade looked like it was going to turn into a max loss.   Surprisingly, when the regular session started on Tuesday, the stock traded at about 175 right in the middle of the range - a gift from the trading gods! The stock closed the week inside the MMM so this position went to max profit.

I had a similar situation with First Solar FLSR where the put side of the trade appeared to go to max loss. Unfortunately, this happened during the regular market hours.  So I pulled the trigger and closed this trade out at just about the fair value of the difference between the strikes, essentially locking in a loss on this trade.  Surprisingly, the stock rallied off the lows and ended the week right smack in the middle of the strikes.  Had I done nothing, the trade would have gone to max profit instead of max loss!

Finally, I tried the same trade with DECK and this one did not go as well. The stock opened down below my short strike and traded most of the day down in that range.  I closed the spread for a debit of 1.60 versus the 0.83 cent credit taken to start the trade.  I could have done better had I waited until later in the day.  And that is one of my lessons learned is to give the trade every change to work out before taking a loss.

Lessons Learned

1)  Do this trade only on big, liquid stocks with lots of volume and good projected Market Maker Moves.

2) Trades later in week are better than those early in the week since you benefit more from Theta Decay.

3) Don't do this trade unless you have options expiring that Friday.  Again Theta Decay is our friend and we won't profit from the collapse in Implied Volatility unless those options are expiring and soon.

4) If the trade goes against you, don't be in a hurry to take a loss.  Things can look very ugly for a time, for example DECK traded as low as 68 on Friday before closing at 74!  But there is tremendous underlying pressure for the stock to close within the MMM because the Market Makers themselves are selling naked straddles on these positions and they only profit if the stock expires inside the MMM.

That's all for now, have a great weekend.

Active-Trader - Adverse Excursion

Welcome back,  Active Traders and Wealth Builders.

Within the past 6 weeks, SPY has been up 8.7% for the year (as of mid September), then October's plunge took it to just barely up 1% for the year.  From there we had a fierce bounce back and are now up 6.29% for the year.  What a wild few weeks!

This past week was a huge one for earnings.  BIIB was the trade of the week where I put on the 310/312.5 - 337.5/340 condor for a credit of 0.98, well past my minimum credit of 30% of the width of the spread.   The short strikes are show in red and the long strikes are shown in green on the chart on the left.  I put the trade on just before earnings at the blue bar in the middle of the chart.

After hours BIIB traded down hard, well below my short strike as going as low as 290.  It was not looking good and I was facing a max loss situation with my short strike almost 20 points underwater.

But I stuck with it and BIIB bounced hard off the lows. It bounced so hard (as a matter of fact) that I sold another PCS (the 302.5/305) on the way back up for a credit of 0.81..  All of those trades went out max profit which is clearly a good thing.

Its a case where adverse excursions outside the market maker move will very often retrace due to the forces of the market makers themselves.   We had a very similar situation in AMZN where the stock move against me for a max potential loss in the after hours session, then retraced and closed within the Market Maker Move for a max profit.

All this makes me realize that I'm not at all cut out for day trading.  Day trading is more like a hair-trigger video game where the market is brutal and will seek out every stop and shake out every weak money player.

Weekly and monthly options trading is more like a chess game, and a much more forgiving one at that.  It doesn't matter how hard the price moves against you.  All the matters is the price at expiration and experience has shown that prices will remain within the Market Maker Move the majority of the time.   When prices exceed the Market Maker Move (and do so in an impressive fashion such as ALXN this past week) great directional trades are born.

Also notable this week were new all-time highs in AAPL and Facebook (FB).  Facebook reports earnings this coming Tuesday after the bell and you know I will be trading that one.

Have a great week ahead.

Active Trader - Trading the Earnings

Welcome back Active Traders and Wealth Builders.

It was another solid week of trading and for the 2nd week in a row,  Monday's open brought nice gains on directional option positions put on for stocks which exceeded the expected move after earnings the prior week.  As for next Monday, I went out long the TSLA 200 puts, so stay tuned to see how that one turns out.

What I have observed is that the price movements of stocks are contained by the options market itself. Prices for stocks reporting earnings have a very strong tendency to remain within the expected move for the week - presumably because the market makers themselves sell options outside the expected move and defend these levels with their own trading in the underlying. Once a new week comes, that constraint is removed and prices are free to run to the next level of support or resistance.

This past week was a parade of earnings reports. Recall that I am selling call credit spreads above the expected upside move and selling put credit spreads below the downside expected move.  The desired outcome is that the stock remains within the expected move and I get to collect the premium.

Last week I said the stock stays within the expected move 80% of the time.  Is that just a guess and if so how does this play out with actual experience?  Let's look at a table of my trades to find out.

Position	Credit	Resolution	P/L
NUS 80/82 91/93	0.80	Closed put side at a debit of 1.88, short of max loss	-1.08
APC 95/97 102/104	0.80	Max profit	0.80
TRIP 72.5/75 89/91	0.80	Max profit	0.80
FSLR 61/63 72/74	0.80	Closed put side for a debit of 0.50	0.30
PCLN 1070/1075 1195/1197.5	1.60	Closed put side for a debit of 0.35	1.25
TSLA 177.5/180 220/220.5	1.06	Closed put side for a debit of 1.07	-0.01
Totals	5.60		2.06

The bottom line is that I put on a total of 12 spreads in 6 stocks and 5 of the 6 stocks closed within the expected move.  For the spreads which threatened to close in the money, I was still able to close them out at a profit except in the case of TSLA which was a small loss. In retrospect, had I done nothing into expiration, 5 of the 6 stocks would have closed within the move taking my positions to a max profit.

For most of the positions, I did small size - 2 contracts on each side.  The exception was PCLN where there was so much premium I did 5 contracts.  I took the largest profit on that trade and all told, I made some about 7.5 points or about $750 which is not bad for a part-time effort.

Looking at each position in terms of the expected move, here's what we have.

Stock	Market Maker Move	Percent of Underlying
NUS	+/- 3.9	4.5%
APC	+/- 2.8	2.8%
TRIP	+/- 7.04	8.3%
FSLR	+/- 4.19	6.7%
PCLN	+/- 58.35	5.1%
TSLA	+/- 18.04	9.02%

PCLN was the largest expected move in points, but at only 5% of the underlying, TSLA wins out with an expected move almost 10% of the price of the underlying.

Enjoy your weekend.

Active-Trader - The Market Maker Move

Welcome back Active Traders and wealth builders.

It was a breakthrough week for my options trading career and I made some pretty decent money trading earnings.  In this post, I will cover how its done so you can do it yourself.  Its not that difficult once you know the tricks which I have learned thanks to the expert tutlage of Henry Gambell and John Carter over at Simpler Options.  Here's how its done:

1) Find companies which are going to report earnings before the next day's open - either today after the close or the next market day before the open.  My favorite source is Yahoo Earnings Calendar. Stick with big, popular high priced and heavily traded stocks if at all possible.

2) Bring up the options chain and calculate the "Market Maker Move" abbreviated MMM as follows:

MMM = Cost of at-the-money put + Cost of at-the-money call

As for an example, with AMZN trading at 300, the 300 Call is asking $9.20 and the 300 put is asking $8.80. Add them together and you get close to $18 so round it up to $20. That means that the Market Makers are pricing just under a $20 move after earnings.

3) Now calculate your upside and downside targets as follows:

Upside Target = Current Price + MMM
Downside Target = Current Price - MMM

In our example using Amazon:

Upside target - 300 + 20 = 320
Downside target - 300 - 20 = 280

4) Next price some options spreads where you are shorting the calls just outside the MMM on the upside and shorting the puts just outside the MMM move on the downside.  In our example:

Short the 320 call
Short the 280 put

For protection, we also want to buy the next further away option for protection since short options have unlimited (or at least very large) risk.  In our example:

Short the 320 call and long the 325 call
Short the 280 put and long the 275 put

So you are basically selling a Call Credit spread above the market and a put credit spread below the market.  Those familar with options parlance recognize that that as an Iron Condor.  The beauty of this trade is that all the price has to do is close anywhere the 2 short strikes and the trade goes out at max profit without even a closing transaction!

5) Calculate the total premium you can collect. For a 5-dollar wide spread, you want to get a credit of at least 1/3 of the distance between the stikes for example $165 for a maximum loss of $335. If can't get a decent credit, don't take the trade. For example, I would not take a $1 credit for a max loss of $400 since the risk/reward ratio is more skewed and not in your favor.

Another cool thing about this trade is that at least one side of the trade will go out at max profit because the price can only have a single closing value.  After all this is trading and not quantum mechanics!

6) If you think you can get a good enough credit, put in a limit order for the side with the bigger credit and see if you can get filled between the bid and offer also known as the natural price.  Once you get filled, on one side, try agressively to get filled on the side since having both legs on actually reduces your overall risk

7) Once filled, sit back and wait for the earnings.

If the stock really pops or drops, you can take off the short option and leave the long on on which I did with some success with AAPL this week.  You can always trade around a position if it moves against you.

Having traded this method several times this week, its uncanny how often the price closes within the MMM! 

Here's a table of trades I did this week and the outcome:

Symbol	Strikes	Credit	Outcome
AAPL	395/400 440/445	+1.90	Max profit plus some due to trading around
NFLX	225/230 300/305	+2.03	Max profit
BRCM	29/30 34/35	+0.35	Max loss but does not expire until August
CELG	131/132 139/140	+0.35	Closed for debit of 90, loss of 0.55
AMZN	275/280 320/325	+1.64	Closed for 0.06 short of max profit

I'm sticking with small volume (1 or 2 lots) until I can get the hang of this.  Also, i'm trying to keep the maximum loss of on any single position less than about 1.5% of the account.

That's all, enjoy your weekend

Active-Trader - Post Earnings Resolution

Welcome back Active Traders and Wealth Builders.

This past week was a pretty good one all things considered.  The week started out with upside continuation in AAPL and I was positioned to take advantage of that as described in last week's post Lemons into Lemonade.

This past week was also notable because of the abundance of quarterly earnings reports.  The outcome of earnings reports can be thought of as binary events one of 2 potential outcomes as follows:

1) Stock stays within the expected "Market Maker Move"

This outcome occurs about 80% of the time and I position for these ahead of earnings by selling call spreads above the expected move and put spreads below the expected move.   For more detail on this technique, see my prior posts here and here.  Recall I will take these trades only if I can take in more than 30% of the width of the spread as a credit.

2) Stock exceeds expectations to the upside or downside and blows through the expected move and becomes a continuation candidate.

You will know this outcome is a reality when one side of the spread you put on ahead of earnings goes max in the money against you.  Sometimes its tricky to tell when this is going to happen since the stock with often come up and threaten your short strike (but never exceed it) then pull back.  Other times the stock will come up and blow through your short strike then pull back.  What happens next is key - does the Market Maker Move level become a new point of support (for further upside) or resistance (for further downside)?  The price behavior is a key tell.  Let's look at a few examples.

Starting the week on Monday, for Herbalife (HLF),  I sold the 53/55 62/64 condor for a credit of 0.75 and a max loss of 1.25.  After briefly threatening the 55 strike on the downside, the selling turned out to be overdone and the stock rallied off the bottom and eventually threatened my short strike on the call side only only to back off and close in the middle of the range.  This trade went to max profit and I didn't even need a closing order which is ideal. The short strikes are shown in the chart as red horizontal lines, and the long strikes are shown in green.

Twitter was our next candidate that came along on Tuesday.  I sold the 36/38 49/51 condor for a credit of 0.75, max loss $1.25.  Again the stock sold off hard after earnings, but rallied off the lows and closed well within my short strikes.  On Friday, the stock sold off and started to threaten my short strike to the downside so I bought back the short 38 put for a debit of 0.05 which is a commission free trade on Thinkorswim. As it turns out I would have been fine doing nothing.

On Wednesday, I sold the Mastercard (MA) 69/71 75/55 condor for a credit of 0.65 which was just under my target of 30% of the width of the strikes. This one ended at full profit with no closing transaction required.

Also on Wednesday, I did Yelp 50/52.5 65/67.5 condor for a credit of $1.20 which is a very good credit for a 2.5 wide strike.  This one got the better of me as follows.  Yelp violated my short strike, so the closed the 65/67.5 for a debit of 0.90 (having sold it for 0.55).  Then to pile on (and figuring it would break out, I sold the 63/65 PCS for a credit of 0.70, then eventually had to buy it back at 1.35 when YELP rolled over later in the week.  So all told, I lost about 1.05 on this deal which is good loss control on an otherwise fiasco of a trade.

On Thursday, I did WYNN 195/197.5 217.5/220 condor for a credit of 1.0 even.  This one started out okay, but as the news came out, it got increasingly bullish.  Note how once the short strike was violated, it was no longer a line of resistance, it became a line of support.  I closed this one out at a debit of 1.35 which was a good thing to do since had I done nothing, it would have come to a max loss of the full width of the spread which is 2.5.  So overall, only lost 0.35 on this trade which is good loss control.

Our lemons to lemonade strategy would be go to out long shares of WYNN expecting further upside continuation post earnings.  But I already had a good decent size position in Lasvegas Sands LVS.

As for up and coming stocks, I have a good position and a small profit in RF Micro Devices (RFMD). This is not a new all-time high, but its a 3+ year high. All time high in the shares was set at 92.25 back at the very top of the dot-bomb bust on 1/31/2000.  In fact I think I traded RFMD back in the day which is why it peaked my interest.  Based on that old top, RDMD is going to need a long climb back to a new all-time high.

Finally, I went out short a few shares in LNKD has shown on the top chart.  LNKD had earnings, and they did not overwhelm.  At a PE of 714, this stock has a long way to go to the downside before its at a easonable valuation.

Have a great week ahead and good trading.

Active-Trader - The Gap, Freeze and Slip

Welcome back Active Traders.

If you have been following my blog for any length of time, you know I am a fan of day-trading delta 7 or higher options on big, popular high-priced stocks. And a key part of this strategy is to limit losses to $100 or 1 point when trading a single lot.  These are pretty tight parameters for an option trade since a delta 0.7 option will move 70 cents for each $1 move in the underlying.  This means that a move of about $1.30 in underlying will cause a stop-out in this type of position.   And that's nothing for a high priced stock such as GOOG or AAPL.

Add on top of that the fact that the bid-ask spread for these options can be 1 point or more, and its easy to see how this strategy can make me easy meat for the market makers.  That said, I have had a pretty decent record thus far and my $1 stop loss has resulted in a loss of at most $130 or $150 on a 1 point stop.

Well all that changed this past Tuesday when was trading the GOOG 895 call which I entered on Tuesday at 18 with a target of 20.5 and a stop-loss of 17.   I watched the stock shortly after entry and at one point I was up about 1.2 or $120 or so within a few minutes.  At this point, there was nothing left to do but just sit back and let the trade play out.  GOOG had briefly tagged $920 on Monday and I figured a retest could be in the cards.

A few minutes later, GOOG pulled back to just about break-even, then gapped down about $2.2 or $2.5 points.  At first, it seemed like a bad tick, and the options did not immediately follow. Instead, they sort of froze and waiting to see if the price in the underlying were just a bad tick or what.  I expected the options to catch up within a few seconds, but instead they just froze.   And I sat there watching the price bounce around, have traded well below my stop price yet the option prices were not updating, nor was I stopped out of my position.

Now this is the type of moment when time just stops as a trader.  You are in a position, and you have a stop, but the market is not letting you out.  And it moments like this when you hearken back to the all the fine print in the account agreement when you sign off on the fact that you can incur financial losses based on failures in technology, servers, the Internet, bla, bla bla.  I get all that, but the market maker has an obligation to maintain a fair and orderly market on the underlying if its trading right?

Well all this went on for 2 or 3 minutes but seemed like an eternity. Tradstation continued to update quotes, but a slower pace than usual.  Its hard to say whether the slowness was real or imagined, but it seemed clear that either the market makers were not updating their quotes, or the Tradestation stop server was hung.  Some time after that, the options caught up, and I was stopped out at $15.70, a full 2.3 points instead of the 1.0 point stop I planned upon.

At this point it occurred to me that stops are just a promise, and promises are not always kept.  It's not that we can't trust the Options Clearing Corporation.  Its more that the options market maker can cease to make a market at any time based on their inability to price the underlying.  And this could happen in a a flash-crash or other adverse market situation. It could also happen if trading in the underlying is halted based on news pending or any number of other unexpected events. It doesn't happen often, but its part of doing business in the wild world of financial markets.

All this makes the case for doing a more time-based methods of trading such as credit spreads, condors and other trades which benefit from Theta decay. I have come a long way in my journey as a trader,  but in many ways, I'm just getting started.

Enjoy your weekend and get some rest.

Active-Trader - Into the Black

Welcome back Active Traders and Wealth Builders.
This past Friday my E*Trade accounts finally came into the black for 2014.

Recall we had a solid 2013 but then stocks sold off hard on the first day of the year, and for most of the month of January.   Most of this past week gains can be attributed to Facebook which is my largest individual stock position and a monster trend in the making.

Unfortunately, my TradeStation account is still down for the year but staging a recovery.  The above gains are paltry considering the performance of my mentor John F Carter.  Having just completed my first full year as a member of Simpler Option,  I have learned much from my association with Mr Carter, and it well worth the $147 per month.

Here is a quick summary of the key points:

1) Don't expect anything from the market.

Coming into trading with a mindset like "I need to make $1000 a day trading" is totally wrong.  Instead, wait for the market to show its hand before taking any action.   A great JC quote which sums it up is "Don't anticipate, participate."   If you take your time picking trades properly from Tuesday-Thursday, you will most likely get paid on Friday.  See #3 below for more on that.

2) Don't trade all the time.

JC has no problem sitting and watching the markets all day and if he doesn't see any setups, he doesn't take any trades.  It sounds simple enough, but he trades only when he sees a setup in the making.

I read a great quote in my first every edition of thinkMoney (magazine from Thinkorswim):

Day-trading is like owning a Bed & Breakfast.  Most people do it until they run out of money.

3) Most trading takes place between Tuesday and Friday.

Most positions are opened late in the day on Tuesday, Wednesday and Thursday when JC is live in the room.  Friday is mostly for closing out positions opened the prior 3 days or preferably letting them expire worthless. Every Friday is payday in the world of weekly options and you want to be on the receiving end of the transaction.

This one took me a while to finally sink in.  Most of the time, stocks that have great looking charts on Fridays give you a much better entry point between Tuesday and Thursday of the following week.

4) Sell Premium

If you are bullish sell put spreads,  If you are bearish sell call spreads.  If you are really bullish or bearish, use the proceeds from selling the spreads to finance directional positions.

5) Sell Premium at +1 and +2 Standard deviations.  JC does this by treating the Market Maker Move at 1 SD and just multiplies by 2 for the 2 SD.  He will be happy to take in 50 cents on a 5-dollar spread.  That's right, he's making $50 with a max loss of $450!  Terrible Risk to Reward ratio, but highly likely to pay out.

I haven't brought myself to do this yet, but this past week I sold puts in NFLX for 0.80 credit for a 5 dollar spread and it worked out okay.

6) Size properly.

JC has no problem risking 5% of his account on a position that he has some conviction in.  I'm still sizing too small for my account size, but i'm slowly starting to make my way out of 1-lot syndrome.

Also, it was my first full week of trading with 100% awareness if the Voodoo levels. Remember in last week's post I said next resistance in PCLN was the treeline at $1261 a full 65 points away?  Well PCLN did that move and then some! Next targets in PCLN are the snow lines at 1300 and then 1322.  And above that you can see the 423% of the original wave 1 move which would be the top of wave 5 at 1361.

Facebook (FB) also responded well to the Voodoo levels as shown in the graphic above left.  We have a few snow lines to get through at 68 and change and 69.37 with the next tree-line up at $71.60.

Voodoo has changed by whole perspective on price action and i'm never going to look at a chart the same way again.  Using Voodoo I had profitable trades in PCLN and FB.

As for next week, GOOG looks very interesting.  We close above the psychologically strong $1200 price level and for this week, we have resistance at 1210 and support at 1192.  The next major upside target is 1240.

You can position for a move to the 1240 level by buying an in the money call debit spread such as the 1200/1230 call debit spread for as close as you can to a 1x1 risk reward ratio.  For example, you would pay no more than $1500 for the spread (which is your max loss) for a maximum profit of $1500 if it goes fully in the money in your favor.

And thus are my predictions for the future, use them to your benefit and have a great week ahead.

Active-Trader - One Wild Ride

Welcome back, Active Traders.

It was one heck of a week filled with upside and downside action, and none more than in my favorite credit card processing company Mastercard.   Recall that we have been on the case with this stock as early as the first week of 2013 when I mentioned it in my post here when it first crossed 500. I've been trading in and out of it in small lots, usually about 10 share blocks. As of earnings which came out this past Thursday, I was long 20 shares in my cash account and 30 in my retirement account.

Anyway, with the stock at about 600 back on 7/30, I tried to get filled on an Iron Condor similar to what I described in last week's post here. With the Market Maker move at about $20, I was trying to sell the 575/580 put credit spread and the 620/625 call credit spread. For whatever reason, I was just not getting filled so I just went home and called it a day.

Come Wednesday morning, earnings are out and at the stock is trading at about 625 in the pre-market. And much to my surprise, I found out I got filled on the 620/625 call credit spread at 0.90! Just when I thought I had seen it all, here I am filled on a spread that I didn't think I had - and I wake up to find myself at a max loss situation!

Well I learned from experience to keep my cool in situations like this, so I just sat on my hands and watched the stock open. It got to as high as about 626 then slowly started pulling back. By about 11AM, the selling got severe on news that a court had ruled against the US Federal Reserve on its ruling regarding Debit Card fees. That sent the stock into a complete free-fall, trading down to as low as 567 before staging a dramatic reversal and closed the day at 610. Someone in the Simpler Options Trading room followed a comment I make to get long the stock at about 580 and made some serious cash on the quick move back up. I wasn't that fortunate, but was able to cover my 620/625 call credit spread at 0.10 for a profit of 0.80 or about 80 bucks. Not bad considering I was looking at a $400 loss a few minutes earlier.

And as if all that were not enough, the next days the stock roared out to new all time highs and traded up as high as about 645. Had I not covered my CCS on the sell-off, I would have been looking at a max loss situation once again! And I held onto the stock the entire time and sold half of my position up in the 645 area thinking this buying was just of a lot of irrational exuberance.

As for the rest of the week, I had a pretty good time selling spreads into earnings and made a little bit of money (less than $100) every day Monday through Thursday. Come Friday, with LNKD shares at 210, I put on the 185/190, 230/235 condor for a credit of 1.85. At the time this seemed like a no-brainer trade and I figured I had a pretty good chance of ending the week taking home the entire $185.

Well it didn't turn out that way and LNKD instead reported stellar earnings that exceeded everyone's wildest expectations. The stock trade as high as 237 and I ended up buying back the 230/235 Call Credit Spread at 4.5 for a loss of $270. That wiped out most of the profits in my TradeStation account for the week.

Over on the E*Trade side, I had a stellar week with nice gains in the broad market ETF's and solid gains in CBOE, CELG, DNKN and the previously mentioned MA. This pushed my net worth out to new all-time highs. But don't confuse brains with a bull market as the saying goes.

That's all for now, enjoy your weekend and the fruits of your labors.

Meta-Trader - The 80-to-120 rule

Welcome back Meta-Traders.

When it comes to trading and investing, price is the ultimate indicator.  Since it determines whether or make or lose money,  you can make the case that its the only indicator that really matters.

One of the observations made by investing guru Jim Cramer of CNBC's Mad Money TV show is that once a stock makes it to $80, there's a good chance they will go to $120 before they split 2 for 1 and do it all over again.   I had this rule in mind when I added to my position in pharmacy benefit manager SXCI Health Solutions last Monday 4/16 when the price was about $79.50.  This price action was particularly telling since the broad market was actually down that day!

Anyway, the price action on Monday 4/16 was important since it took out the high of a "Bull Elephant Bar" put in back on 4/2/2012 which pushed the price solidly into the mid 70's.  And that move took out the high of a prior bull elephant bar put in back on 3/9/2012.  So the price action was showing higher prices ahead and that's all I need to know and to add to my position.

On Tuesday came the news that SXCI was taking over Catalyst Health Solutions for a cash and stock deal for a 30% premium to Catalyst's closing price.  Usually in a takeover situation to acquiring company's shares go down due to dilution.  In this case, the shares of both companies popped signaling that the market clearly viewed the consolidated company as a case where the whole is greater than the sum of the parts. 

Anyway, my timing was good since it was all upside in the shares which touched $100.5 later in the week before pulling back.  Clearly the stock made half of the 80 to 120 move in only 4 trading days!  I look off the shares added on Monday for about $97 on Friday bringing in 18 points in a few short days!   This move added about 1.5% to my portfolio on the week and added to my lead over the S&P 500.

Of course it doesn't always work out that way, but it shows there's a method to my madness.  Of course its easy to point to past success since hindsight is 20/20 right?  So who are the future winners according to my methods?   Here are some potential 80-to-120 movers showing promise right now:

FDO - Discount Retailer Family Dollar
ICUI - Emergency Room equiment maker ICU Medical
YUM - Restaurant company YUM brands

I have some others, but these are the ones looking most promising right now, and I have open long positions in all three.

As for Automated Forex Trading,  it was another miserable week with all of my accounts now clearly in the red for the year.  We have some sizeable unrealized profits in the Atinalla No 3 and Atipaq Full Portfolio, but I don't beleive either of these moves will bring the accounts back into the black for the year.

Speaking of Forex, I have a very curious situation where my MyFxbook accounts are showing no open trades, yet my MetaTrader platforms show a number of open trades.  At the same time, the MyFxbook page appears to be completely up to date.  If I get that figured out, I will leave a comment later today.

Enjoy the rest of the weekend and coming week.