With the HD trade up 150%, I’m sitting on about a $7500 profit. Being a natural bear, riding such a bullish move is always difficult but it shows the value of tracking a stock with the 7 day moving average. At the moment, I plan to let the trade play out through the day and most likely into next week. I will have to take some profit out at some point later today but that will be for pure profit taking sake.
Below is a chart of HD. Notice the move it August where HD surged. The move was on strong volumes and instead of being followed up by a sell-off, it was followed by a small drift higher. During this time period, in the money options continue to appreciate in value while out of the money or ultra short term options start to decay. To me the risk in HD is not in a strong pullback but rather in going flat. The strongest pullback we are likely to see is HD pulling back to the 7 day moving average.
For my HD trade, the further the stock gets from the 7 day moving average, the more likely I am to take profits and await a new entry on small pullbacks. I will keep you posted. For now, the trade is helping me catch up to John who presently has a solid put trade on GDX working for him.