sold (to open) 8 August 2014 $165 puts at $0.64
Reasons for initiating this trade:
- bottom of stochastics (see timing on chart)
- probability of success: 76%
8/13/2014 (11:01:20 am, PT)
DIA trading around $166.46 (see chart)
buy (to close) all 8 puts at $0.22
NET PROFIT: $307.68
Reasons for closing this position:
- take profits (VERY important)
- remove the risk from the portfolio
THE LESSON:
- When I initiated the trade on 7/30/2014, I thought the 50 EMA could be the "support" (see chart)
- Clearly, I was wrong. DIA "broke support" and dropped all the way down to $163-ish on 8/5/2014 (see chart)
- My DIA Aug $165 puts were "in-the-money" for quite awhile. Closing my position at that time would have resulted in a large LOSS. Don't panic when your short puts go ITM. There's plenty of time, so wait.....
- I decided to close my position on 8/13/2014 because DIA was touching the 50 EMA which could be a new "resistance" (see chart).
- I normally wait until the stochastics are at the top before I buy back my short puts. However, in this case, because I only have two days remaining (until expiration) and there's a lot of volatility, it's best to close the position and TAKE PROFITS.
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