MCP Jan. $5 Call Follow Up

We're always learning lessons, hopefully, and the lesson I learned, is even if I expect a short term trade, stick with at least 6 weeks of expiration on an option. I've been using 2 months typically even on what I think will be very short term trades, I'm not seeing 200% gains, but I'm also not blowing up options portfolios like in the past. Options are the closest Wall St. gets to Vegas and the same rules apply, the longer you sit at the table, the higher the probabilities rise that the house will win.

For this reason I try to take my gains and walk out of the casino, don't forget that options are a derivative product and don't forget who created them and made sure that the house always wins. The only way I've found to beat the house is to do everything the exact opposite of the appeal they created and drew you in to the game with. For instance, cheap out of the money options let you control a boatload of shares, you are thinking about how much money you'll make if that boat comes in, and if it does, it's even more dangerous because now you've set a precedent that you believe works. Options traders tend to stay at the table too long hoping that 75% gain will turn in to a 400% gain; it's just like Vegas or the Lotto.

I treat options the exact opposite, I only use them when I have to which means there's no other way to take advantage of a great signal and make it worthwhile from a profit perspective, I buy quality in the money, not out of the money and I get out at the first sign of fading momentum which is often a day or two. We tend to walk away with 30-50%, but that's what the goal was, to make the trade worthwhile, not to try to get rich overnight. I also tend to go for contracts with a LOT more time than I think I'll need, at least 6 weeks minimum, but I made the mistake of going with a shorter January expiration with MCP because I thought it would be a quick trade, bad idea, I learned a lesson, I broke the rules and now am having to relearn that lesson.

In any case, MCP calls are not too bad, they are down just under 32% and that can come back in a flash. The question is, "Is it likely to come back?" I had to make this decision a couple of days ago, I let go of AAPL calls at a loss, luckily the SLV puts more than made up for it, but I considered MCP at the time too, whether or not to take the loss then and decided that there was enough data that they were worth holding. At some point, maybe even worth adding to or putting them out as a new trade.

So here's the MCP update as MCP is up just under 3% today. I wanted to make sure that my initial observations had some meat on the bone before I presented MCP, this is a trade update, not a new trade post, however that may very well develop. (MCP CORE equity long positions are still open, trading equity positions were closed before the pullback).

 This is the X-Over screen I use for several different reasons, I don't need it to see MCP broke out of a tight lateral base, but it is useful in that the first pullback is usually to the yellow 10-day or bar moving average and the second or subsequent pullbacks are deeper to the blue 22 day  or bar moving average. In this case we are near the 22 day and also at the area of support that was formerly resistance of the range and became support after the breakout (at least according to generally accepted Technical rules.

However it's important to pair the right timeframe with the character of the stock, you can do that by looking at the historical character of the stock and fitting the timeframe to the asset like here I'm using a 2-day chart which actually fits better with MCP's character, but be careful not to over-fit any indicator and don't change them as the trends change.

With a 2-day chart we have a pullback to the 10-bar m.a. and we have a hammer candle, this is why it's important to look at various timeframes, there are things there that you wouldn't notice otherwise and they are just as valid.

As for the 30 min chart, you can follow the divergences and even a head fake move to the far left out of a bullish triangle and to the downside, the accumulation in the range which is actually a small double bottom or "W" and at "A" what I'm pointing out is the parabolic nature of MCP's breakout, you probably know that I don't trust parabolic moves, they tend to end up just like this.

 The 15 min chart is nice and clear as well showing the loss of 3C momentum or selling in to the parabolic move, this is a visual representation of why I don't trust these vertical parabolic moves, but since then it seems that the pullback has been accumulated.

A pullback of an otherwise strong stock (as in longer charts like the 30 min above are powerful) is a fantastic entry in to a new trade or an add to. When a stock pulls back we have movement and we can either see distribution, in line or accumulation indicating a healthy pullback and buyers are interested in the stock at a lower price, in fact they likely created the pullback to add to their position at more reasonable prices and it allows them to add to their position without sending price against them as demand tends to send assets higher.

On the 3 min chart there has been a recent change in character, the initial hint I had to keep MCP open at "A" is a relative positive divergence, it means that on a relative basis, 3C is higher at the last point than the first even though price is lower at the last point vs the first, IT'S A RELATIVE COMPARISON BETWEEN TWO POINTS.

If that divergence is strong enough, typically what happens next as accumulation builds is we see a leading positive divergence and that's what we have at "B" so I think my initial thought s on MCP were justified by the current divergence.

5 mins is an intraday institutional timeframe, I warned at least twice that MCP was going to pop to the upside because of these very same divergences to the left and it did, then I warned that MCP was likely to pullback and trading longs were closed. I thought we'd get a quick bounce before the pullback continued, that didn't happen, but now it seems the pullback is nearing its end.

You know what we want to see from here, a reversal process so we want to see some lateral price action rather than the trend down and a "U" shape, that may be enough to call out MCP as a new trade in equity (long) or maybe even in options if we were to get a head fake move that reduced premiums and set up a strong options trade, but otherwise, with the Jan calls that are open, I think they'll be okay and at least do better than where they are now if not actually make a profit so I'm going to continue to hold them until or unless something changes for the worse, but so far, the initial positive signals have matured and we look to be close to support and the start of a reversal process that need not be very large proportionally speaking.

Good luck!