Priceline Bear Call trade – Update

Trading Options

 

We put the Priceline Bear Call Trade (PCLN) on Dec 3. At that time, PCLN had stuck its head above the upper Bollinger Band. Just because a stock goes above or below the 2-Standard Deviation bands does not automatically trigger a trade. However, we noted that Priceline had already made an impressive move up of 25%. When these two factors combined, it provided a strong entry signal. This was going to be a “mean reversion” play.

 

 

 

 

As of today on Dec 11th, we can see Priceline has dropped by about $50. Out of a maximum profit of $2700, we have a clear profit of $2050. Normally this would be enough reason to close the trade out. However, upon close examination (see chart below), the following points can be observed –

 

 

  • The 725 Short Call got us a premium of $8
  • The 740 Long Call cost us $5.3
  • Today, the 725 Call is going for 1.55 (a profit of almost $6.5)
  • The Long Call is going for 0.90 cents
  • The trade has a profit of $2050

 

Instead of closing the trade, I’m going to take the suggestion of a fellow Linkedin group member, and close the 725 short call for a profit of $6.5. Now I paid only 5.3 for my Long Call, so I have already paid for this Long call. And I still have 38 days in case PCLN turns around and makes a move to the upside, everything that the Long Call gains will be bonus profits. Great adjustment and great trade entry !!

3 Comments

  • jordan

    Reply Reply December 12, 2012

    Is this still on – what is the status now

  • Raj

    Reply Reply December 12, 2012

    Nice trade. Like the analysis and entry point

  • Gus

    Reply Reply December 13, 2012

    How do you calculate the return ?

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