Monday, November 15, 2010

PCLN Watch

One of the my Watchlist holdings, Inc. (PCLN), moved to bear phase this morning on Person's Proprietary Signal (pps), and I've closed my position.

I opened the position on Nov. 8, the day earnings were to be announced, after the close.

An upside earnings surprise produced a gap up, so it turned out to be a good gamble. And I do say "gamble": Plays that close to earnings always have a high degree of uncertainty, which can be mitigated by position sizing and hedging with options.

I did two write-ups, one prior to the trade, and one after earnings were announced.

My position was a bull put spread. I sold the DEC 370 put and bought the DEC 360 put for a net credit of $375 per contract.

My sale today produced a debit of $155.

So, my risk on the position was $625, and my return was $220, for yield of 35.2%. Not bad for five trading days work.

The pps bear signal is poorly confirmed by on-balance volume, which has set a lower low, but in a fairly half-hearted way. I could have made a case for holding the position, but why bother? It's profitable. My favored course is to take the profits and move on to the next trade.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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