TEAM – Breakout from Cup and Handle Long Calls

This will be the first full week of the $1,000 to $10,000 challenge. We’re looking to get on the TEAM train for the breakout of it’s cup and handle pattern. ATM Long Calls NOV 17 50C.

Update 2

Some crappy price action after solid morning. Closed this trade around $52.70 for a total profit of about 32% return on investment on the long call options. This was a winner.

Update 1

We entered this trade when the underlying stock price was $51.3 with 1 contract at a price of $2.19. As of market close, this contract was worth $2.45. There was some great price action in the last half of the day, and it almost finished at the daily high. This is bullish for continuation tomorrow. Hoping this pushes higher tomorrow and finishes strong to suggest another hold. Will see tomorrow, but today went well.

Thesis

TEAM has been on a steads uptrend making a new all time high before earnings and took off like a rocket ship after earnings. It has retraced to the .236 level in a cup formation and has made a small handle on the 30 minute chart. I believe with it’s current forward momentum, the consolidation period above the breakout line will be minimal if at all existent. This has seriouspotential for another 15% move over time, but we’re going to be getting in and getting out for the most dynamic part of that move which would be the immediate swing to $55.

Entry Price

I was going back and forth on whether to buy at support ($51.02) or to wait for confirmation of forward movement at $51.67. Our bail out stock price is going to be around $50.50, so I’d feel more confident waiting for a test of $51 before entering. That way, if the trade goes against us we’ll have lost to a 1% move instead of a 2% move. If there’s a gap up in the morning, or if it breaks out before ever challenging $51 I’m inclined to just enter the trade on the confirmation of continued forward momentum. So, that pretty much creates a “no buy zone” between $51.25 and $51.70. I’m happy to buy between $51-$51.25 or above $51.70.

Trade Risk

We risk a minor consolidation before continuation (forming of a larger handle). We’re not going to be waiting around for this given the contract that we’re buying and it’s sensitivity to decay, so this is going to move quickly or we are out. After analyzing the risk profiles of the different available contracts, the 50C is the most attractive. This is going to be less sensitive to price action if it wants to form a handle, and has a more attractive theta at the $54-$55 dollar range, which is important because if we reach our target price quickly and it seems to have more momentum we want the chance to stay in it just a little bit longer.

Portfolio Risk

I’m hoping to buy this contract at around $1.90, which would mean about a $200 risk to my portfolio, which is 20% of funds. Admittedly, it’s frustrating only getting one contract but that’s what the trading plan calls for and we’re going to stick to the plan.

Participate

Let me know if you’re getting into this trade. If you’re interested in joining a chat group that I participate in every day, send an email to jtbabin3@gmail.com. Subscribe to our mail list, follow me on Stocktwits (jbabin387), and if you play it let me know how you did!

Leave a Reply

Your email address will not be published. Required fields are marked *