Stock That Brought Me Back From Flat

Hey 5-Star Trader,

“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my 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.

For this week’s “Tuesday Trade,” I want to outline my setup in Applied Materials (AMAT).

At the beginning of last week, my portfolio was flat. The market was extended (pictured below), and earnings season was ramping up, so I felt it was best to let the market shake out before taking on any more positions. I was on the hunt for a decent swing trade, so I kept my eyes on a handful of names, seeing if they could potentially bounce. Among those names was AMAT.

A few days later on April 21, I decided the market had shown me enough strength to get back in and I bought a long butterfly in AMAT, targeting $140, set to expire May 14.

Note: For this contract, I opted for no stop. In order to mitigate my risk, I only bought one position. Having no stop is inherently riskier, but scaling down position size will ensure I’m not risking too much of my overall portfolio.

How did AMAT bring me back from flat?

As mentioned above, AMAT was on my shortlist of tickers to watch. This is because AMAT is a semiconductor company and I know this sector has a high-probability shot of running into earnings. 

The day after I got into AMAT, President Joe Biden announced his proposed tax hike on capital gains. The market promptly reacted, taking action toward the downside, and AMAT was no exception. However, after the initial selling, the market was bouncing off the lows and digesting the news. Though the long-term effects of this tax increase are unknown, I was confident in my pick and the rally of the market so I held my position.

Holding strong through this week…

It is now April 27, and we are at the core of earnings season. The majority of Facebook, Alphabet, Amazon, Apple, and Netflix (FAANG) reports are releasing, which can make this a very volatile week of trading, but I am still holding AMAT with a little over two weeks left before its expiration. The May 14 expiration was deliberate in anticipation of the FAANG earnings because I like to make sure they expire at least two to three weeks past FAANG week because this leaves me a buffer zone.

I expect AMAT to experience a little more action than I would like in the week to come, but it’s all been anticipated and risk has been adjusted to accommodate such market conditions. Now the only thing we can do is wait, but as of right now we are looking pretty good as it continues to outperform its competitors in the field.

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