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.
As COVID-19 continues on, and we wait for a potential vaccine… it’s a good time to look at pharmaceutical companies. Because after all, they’d be the ones most likely to put this vaccine on the market.
Whenever you’re trading a pharma company these things are going to be crazy — they’ll move based on the news. You can still trade them based on technicals, but you should understand that they’ll be largely moved by the news overall.
I was looking at this ticker for a couple of key reasons: it was a potential short squeeze because it had high short interest of about 10%. It also had a catalyst which was a squeeze, and it also had another catalyst as it’s one of the vaccines makers that’s in the running for creating a COVID vaccine.
Now like I said, these tickers are massively affected by news. So it seemed like I was in this thing forever. In fact, I had a ton of emails saying it’s not going anywhere… but I tried to have patience. Then what seemed to come out of “nowhere” was the news about their potential COVID vaccine… and boom it exploded.
Of course right when the squeeze exploded, and the Turbo VZO was showing that volume was pouring into this thing, and the TrendStrength Candles shifted to green, as well as the appearance of volume dots.
How It Played Out
Now that it took off, it was time to take the trade.
I took this in my Mastery as a more conservative trade because I was in the process of buying my lakehouse, so I couldn’t do anything too risky with this. Normally, had I seen a setup like this I would’ve traded it by buying long calls. However, in this instance, to be more conservative, I traded a debit spread.
The debit spread was $5.78 and I ended up closing it for $9.52. All in all, I traded it from about $60 to $75. On the debit spread itself I had a long call at the 60 strike and a short call at the 80 strike.
Why Did I Do This?
That’s because of the timeframe that I was looking at for this trade.
This trade was expiring at the end of July, and what I was looking for was at the minimum the possibility of it coming up and hitting the area of resistance. Which I thought was an easy target. (Whenever I’m using targets, I use an easy target for a conservative trade and a full target for a more aggressive trade.)
So I did a small debit spread because I was using my small account, I got in during the squeeze, and I took the easy money on the breakout at resistance.
Did it keep going though?
But that wasn’t what I was trying to achieve with this trade. It’s a good example of how you can take off money on a short squeeze in the stock market. This particular strategy I explain in great detail in my “Short Interest Secrets” Class HERE.
Remember, once you set your mind to a certain trade you need to stick with it. So even though I saw that it was continuing on, I knew my work here was already done.