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Friday, January 12, 2007

Options Trade Post Mortem: IntercontinentalExchange Inc. (ICE) Puts

I feel the need to record this so that I can learn how to improve upon my exits.

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1. Why did I take this trade?

I bought
ICE Feb130 Puts because ICE was showing signs of being overbought - RSI spiked up to +80, the gap between Thursday's price and the 20d EMA has been the highest it's ever been, and the gap between the slow and the fast line on the MACD has been the widest that it's ever been. Persistently overbought RSI is a sign of bullish strength, but ICE was at +80, and it had always pulled back whenever it reached this high of a level in the past.


2. What was the initial stop?

I bought ICE Feb130 Puts when ICE was unable to recover from the afternoon selloff, initial stop was @ 137.


3. Why did you exit where you did?
I had the right idea with the entry. Unfortunately, I sold out of fear of losing my profits. I again fell into the bad habit of looking only at the tape and
did not look at the chart .

4. Is there anything you would do differently?
Yes, trade the chart and not the profit! The 10 bar MA was a natural stop loss point.
Yes, trade the chart and not the tape !

3 comments:

Simply Options Trader said...

I have at times this problem as well. I think it helps to scale out and partial profit take

Cucca said...

Its interesting to me that you took this trade based on a setup on the daily chart, and yet made an exit on the five minute chart.

Phileo said...

Hi Cucca,

Thanks alot for visiting!
I take the Phantom of the Pits mentality when it comes to options - why bother waiting for your thesis for entering to be proven wrong before exiting ?

Also, I am considering risk and probabilities here. I knew that I was going to exit sometime on Friday. From my point of view, the probability of 3 days of no news or events affecting ICE was at best a coin flip. However, the odds of it going down on Friday were much greater than 50% given thursday's after hrs trading and the pre-market trading on friday morning.

So, Friday, your odds of having a profitable trade were greater than 50%, but by Tuesday (remember, NYSE is closed this coming Monday), it is a coin flip at best.

The daily chart provided the bigger picture, and I drilled down to the 5-minute to highlight where I got out - I wasn't actually looking at the 5-minute when I decided to exit ICE.