What’s up guys!
I wanted to break down our recent CVS call trade. This was a multi-day swing play that ended up netting us 100% profits! I’ll walk you through the process of how we found this trade and how we determined our resistance points along with the final exit price.
As you may know, CVS recently experienced a double decker dump. It tumbled from $70.00 all the way down to $52 bucks! Yikes! The last time CVS was in this price area was in 2013! Whenever stocks are in free fall mode it can be tough timing your reversal play. On February 20th CVS started the dive. Notice how the drop sort of looks like a staircase. This is because after every small drop there’s a little bit of buying followed by more selling.
This type of buying and selling is the big guys scraping off the pennies from the little guys. When a stock is very oversold the big guys know if they buy there will be more buyers to flow in and allow for more shorting opportunities. Now personally I don’t like playing the role of the little guy in this scenario so my goal is to figure out when the reversal really occurs. I like to wait for my indicators to tell me this. In this case with CVS I wanted to wait for our stochastics to pass the previous high hump with continued green candles as shown here:
We entered into CVS at $53.42.
So now that we’re in the trade we need to figure out where our potential trouble points are. Our first level of resistance was $54.10 as this is the last “step down” on the big sell off. Our second resistance point was $56.10 as it was the step up above our $54.10 level.
After we hit our second resistance point we experienced a major gap up in the morning open. When this occurred we may have become a little excited and decided to lock in our profits that we made.
100% is an amazing accomplishment, however, as shown in the chart below we could have yielded quite a bit more gains.
In my opinion, CVS is still looking good for calls. Depending on how SPY reacts the rest of this week it may continue rising up to $58 or $59.00 which would be another 100% gainer. My advice would be to choose a safer option contract and go with a late May/early April expiration.
For those of you who entered this trade with us…Cheers!
Happy trading everyone!