TradeKing Blog Short Term Option Plays

Short Term Options Plays can be tricky. Sometimes goals are met and sometimes they aren't - like today with AMD. I changed from the 13 to the 12.50 to the 12 strikes respectively for calls on AMD. Then disaster hits when I'm already unhappy that I didn't take my profit when AMD was at 13.28. At that point my Options House account was flirting with about $ 1,000, but had been lower than that. Through successive trades due to the disappointing price action with AMD, my account is below 400. So what can be learned here? Either I didn't assess things right - no I don't think I did - (when at 13.28, bullish moving averages seen and no cross overs intraday when I looked at it), or I had too much time in trade and didn't quickly take profits. So let's analyze the goals. Fred McAllen talked about 3 - 5 days for how long it takes for a price reversal to happen on a short term time horizon. I'm not sure if it was in his 1st or 2nd books, but its in one of them (Charting and Technical Analysis or Trading the Trends). From lows to highs, we can't necessarily expect price to go to the stratosphere on the bullish side or crater to the downside. In the 6 month chart for AMD as an example: We saw a 15.55 high - at end of Feb; If anyone placed any kind of bearish play on here - you would have impeccable timing! If you missed that move; perhaps you saw the 14.68 high on March 13th. Maybe you missed both, but started noticing weakness for AMD and Earnings was coming up as well (the last earnings was 1 penny in the red). So you saw a couple of days of successive highs at the same price level - March 31st - April 5th. At any of those tops near 14.75 price level you could have place a bearish trade and have been proved right with a potential profit depending on what you did after entry. One last try was at 13.755 right around earnings; if you had made a bearish trade at that point, you would have only been disappointed twice in the 3 month after the drop on 2 spaced apart rallies with the buzz about the tech conference things in early June. On May 1st we had a slightly less high of 13.63 right before the big drop on earnings news. The price gap goes from 13.25 to 11.76 (the top of the big red candle that ensued). Then I saw opportunity near 9.86 to low 10's. That was perfect for a bullish entry since the big drop already happened. Read MoreOptions involve risk and are not suitable for all investors. Click here to review the Characteristics and Risks of Standardized Options.Click here for additional TradeKing disclaimers.