Options Trade: MasterCard Incorporated

Summary

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1. Why did I take this trade?
I bought MasterCard (MA) Feb07 115 calls when MA broke above 108.25 because the chart gave an indication that the opening pullback was finished. As it turns out, my entry was not ideal at all. MA started falling down some more not long after I bought my calls.


2. What was the initial stop?
Initial stop was at 107. Why didn't I sell before it dropped down to 107? Because the drop down to 107 was on low volume. Plus, the 10d EMA was creeping upwards on the 5d chart, so I was reasonably confident that there was buying support @107.

However, I recognize that this was not a compelling technical reason to keep holding instead of closing out the trade. In other words, I would rate my entry as a C+ in terms of risk.

3. Why did you exit where you did?
MA became overextended after it broke above 112.5. Everyone who bought in the past 2 days were now selling. I needed to follow the rest of the herd and capture and protect my profits.


4. Is there anything you would do differently?
Yes, the entry could have been timed better. MA turns out to be an example of buying support instead of buying the breakout. I should have been more mentally alert and focused on the 107 level more - it turned out to be a somewhat significant support level. Alternatively, I could have bought half of my position when it broke above 108.25 initially, and then buy the other half when it bounced back up from the test of the 107 level.