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When aggressive trading can pay off

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

Let’s talk about Chewy… yes, again.

When you find a ticker that works really well with your trading style as well as some of your favorite strategies, as long as there’s a setup present… there’s no reason not to trade it again and again.

With that said, this ticker fits in a couple of different places…

It’s a setup from my Short Interest Secrets Class, which means it’s a high short interest setup (a.k.a. A short squeeze). And it’s also one of my favorite Phoenix stocks, as I’ve said before when I’ve mentioned Chewy.

I went ahead and got into this trade after it reported earnings on December 8th. If you go back and look at the chart from this day you can see, at that moment in time, it was right up at a new all-time high. Now normally I don’t recommend getting into a ticker when it’s at an all-time high.

However…

The difference with this ticker is that it has high short interest. So what that means is that there’s an abnormal percentage of shares being held short. So what happens? When a stock gets to a new high on high volume, the short sellers panic and have to buy to cover to get out of their positions. That ends up causing a short squeeze. 

I won’t lie… this was an aggressive trade because I bought Chewy when it was at an all-time high. At the time it was trading at about $89, so I bought 100 shares of stock. I did that because you don’t have to worry about trying to time it. Plus I was on vacation and wanted to be away from my computer for awhile. Then I also added a low-priced butterfly.

The Butterfly:

So I set up a 90, 100, 110 butterfly.

That means that my butterfly was $10 wide and was targeting a price of $100. Something I haven’t mentioned yet (but is also important to know) is that when I placed this trade it was also options expiration week. I noticed that in the options chain, Chewy had a lot of high open interest at the $100 strike.

This trade was really a combination of everything I do: short squeeze, phoenix, and my stacked profits strategy. After all, stacked profits is all about identifying directional targets and then placing a butterfly targeting that zone to maximize the risk to reward.

The Profit(s):

In this trade, I ended up making a few thousands dollars because I had 100 shares of stock, and I scaled out of them as Chewy traded higher. At the time when I took the screenshot of my profits below I had scaled out of 90 shares, so I only had 10 left.

I had 5 bullish butterflies, and I paid $1.61 for each one ($161 apiece). So I started scaling out at $5, then a couple more at $6, then another at $8, and then the very last one at $9. The last one turns out to be about 5.5X my debit.

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