Priceline Bear Call trade – Update

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 !!