Scaling Out Contracts…

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 trade in Apple (AAPL). 

Apple is a large-cap stock that can present many opportunities if the moment is just right. For that reason, AAPL is always on my shortlist of tickers that I’m watching, and late last month I started to see something interesting set up.

Near the end of August, I saw that AAPL had been stuck around $148 for a while and was in a nice squeeze. I explored my options but found that I couldn’t get a put credit spread with decent risk-reward. Instead, I decided to buy two unbalanced butterflies — BUY +2 BUTTERFLY AAPL 100 17 SEP 21 147/155/162.5 CALL @2.39 (limit order) LMT.

As mentioned previously, AAPL had been stuck around the $148 price point, so my idea behind this trade was for AAPL to stay within my butterfly rage. If AAPL behaved perfectly, I could make max profit, but if AAPL were to go higher, I would at least be able to keep my credit. This was a bullish trade with my risk being approximately $500.

Three days into my trade and everything was setting up nicely and I was in the green. Sometimes, when I have more than one contract in a trade that is profitable I like to scale out so I sold one of my butterflies to lock in my gain — SELL -1 BUTTERFLY AAPL 100 17 SEP 21 147/155/162.5 CALL @3.51 LMT. However, I decided to hold the other half to try to secure max profits.

Several days later, I was able to make the rest of my profit on my remaining contract and close out for a win — SELL -1 BUTTERFLY AAPL 100 17 SEP 21 147/155/162.5 CALL @3.70 LMT to close, taking profits on the rest of my bullish AAPL butterfly.

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