As always I want to take options profits while there's momentum, when the momentum fades so do the profits and a lot faster than you'd think if you are use to trading only equities. We don't play the options game the way Wall St. set it upp, like Las Vegas, it''s a tool to be used at the right spot and we don't play the game with their rules, but our own so we're not looking for a 700% gain that we can tell a story about the rest of our lives and blow up the account after that, we use the leverage when there's no other good alternative and get out as soon as the momentum starts to fade.
The other side of this trade is, we don't chase trades, let them come to you and if you like USO like I do, then you may just be in luck.
First the P/L from the USO Dec. $35 calls.
The fill was at $.54 so the profit is nearly 71%.
There's a lot more to come in my opinion.
This is a perfect example of a reversal process rather than an event as most people expect of stocks, this is what we want to look for. These tight ranges like this is where we most often see accumulation and distribution so while everyone else thinks it's a dull market, this is actually where the most action is going on.
The head fake concept is seen here in yellow, we see these on all timeframes as the market is fractal and in about 80% of all reversals (you just have to look), there are a number of different versions, maybe that will be part 3 of "Understanding the Head-Fake Move". However, when you see a head fake, probabilities are very high that we are at the transition point from a base to mark up.
Note volume jumped, that's the longs getting stopped out as they place stops at an obvious place just at or below defined support, it's an excellent buying opportunity with low risk.
Another reason for the head fake just before a reversal, the momentum they create,
"From a failed move comes a fast move".
This is the big picture 60 min chart from distribution and decline to accumulation and the start of mark up so USO is still early in the process and still in a good buying position, but I think we can get better with a LITTLE patience.
Note the 15 min chart confirms the downtrend perfectly and then shifts to accumulation,
but more importantly, we can identify a head fake move from a real breakdown by seeing if it is accumulated, what does this chart tell you about the head fake in yellow?
Here it is again on a faster 5 min chart so we can confirm the same day, often the same hour,
bit we also have another issue, this is why I closed the calls, we have a small negative divegrence on a 5 min chart, we've had a strong run, but candles are getting smaller and volume is falling off, a pullback (constructive) is high probability and I don't want to burn theta with a December call, I'll just close it and re-open it at a better price.
I like calls if the situation is right, but otherwise I have no problem with a 2x leveraged long Oil/USO ETF. We are looking at the daily X-Over Screen, initially developed to weed out false crossovers or whiplashes, but it's turned in to a system itself.
From the first breakout in a new trend (white-we have 2 of 3 and the 3rd signal will confirm soon), the first pullback is almost always to the yellow 10-day price moving average and that's where we want to look at buying USO again if you didn't just hold or adding to it. Subsequent pullbacks are usually deeper to the 22 -day blue price moving average, but for now, we look for a pullback to the 10-day and then we confirm that the pullback has been accumulated, then price and the trade comes to you, a stop can be placed under the 22 moving average initially and off we go.
I'd set some price alerts because I REALLY like this one and have been patiently waiting as the base was being built, now's the time to take advantage of that patience.
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