Anatomy of a Trade
2020.01.17
The Trigger
During my Jan 15th review of Unusual Options Activity, I identified 20Mar20 23 Call volume of 30,751. This level got me interested to look at the VXX Daily and Weekly charts.
The TD Indicator was a Red 7 on the Daily.
I also looked at the ES1! Daily chart. On Jan17, the TD Indicator was a Green 9 which suggests a 1 to 4 candle correction. My thoughts were that if price drops then volatility will increase.
The Rationale
Unusual Option Activity can be an indicator of smart money positions and I believe can foreshadow the direction of price.
While the charts did not meet my usual criteria, I decided to take a position using a tight stop and test the theory.
Risk Analysis
Target Profit Range
I would give this time to run and not take a loss on the position exiting if we got a Red 9 TD on the Daily, hit a key fib level and/or a reversal candle on the ES1! or VXX charts.
Stop Loss
I placed a discretionary stop using:
the closing day price under the Jan 17 VXX low of $13.25, or;
a decline of 50% of the option value.
Position Size
My position size was limited to risking 1.5% of my trading capital.
Trade Execution
Entry Price
2020.01.17 Purchased VXX 20MAR20 23 Calls at $0.2700
Exit Price
2020.02.28 Sold VXX 20MAR20 23 Calls at $2.4639
Closed for the following reasons:
The 50% fib from the Dec 2018 was hit.
What I considered a reversal candle on the ES1! daily had formed.
It was a Friday and I had substantial gains