GS – Calls for Ascending Triangle Breakout

I’m looking to enter GS long calls NOV 17 245C. It’s a conservative play, but fits nicely within the $1,000 to $10,000 trading plan and offers potential for some serious profit. Hit me up on stock twits to learn about a chat service where we talked about this (jbabin387).

Update

Out this POS for a $31% loss. Tough day on the market for financials! This was a good trade, with a good setup and exit strategy, it just didn’t go our way.

Thesis

There’s some good resistance at $246.88, but it’s forming an ascending triangle and is seeing a rising support level from the trend line. The trend line has been pretty well respected, and it’s going to get one more chance to break out of this pattern to the upside. If it fails, it’s likely coming back down. Ideally, we would buy a contract with more days left, but I still need to keep the portfolio risk to 25% of current funds (currently $1,077.68).

Entry & Exit

We want to buy at support, which would be the lower trend line. However, I’m inclined to buy anywhere near it because if it tops out to resistance again the thesis is broken, and we want to be in it for the next chance. If daily price action tomorrow indicates lower I’ll wait it out, if it indicates upward I’m going to jump on it right away. Ideally, we could get in at $243, but I’ll settle for anywhere under $244.

I want to wait out the breakout from the ascending triangle, but I don’t want to wait out the larger cup and handle pattern. We will meet heavy resistance around $253.50 so we’re going to sell to close at the first signs of it. That’s going to be quite a nice profit, so I think it’s a good take.

Trade Risk

Obviously, we go below the trend line of the ascending triangle it’s over. I usually wait to see if it’ll get rejected, but too much time down there is bad. The longer this trade goes on, the less risky this becomes, however we’re going to be fighting time decay as well. Although we’re mitigating some risk by buying a conservative strike price, the contract length is actually very aggressive. This is a moderately risky trade, but has straight forward entry exit points as well as a great risk reward ratio. We stand to lose 30-40% of our contract value, but if it plays out the way we want it to we’re looking at an absolutely enormous win.

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