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Don’t chase calls higher

We’re taking a look at the daily time frame chart of Pinterest (PINS) today. This is a chart that has been in a steady uptrending market. You can actually double-check that by looking at the charts going back to even early June.

Now what’s even better about this ticker is that it’s had a double green market since the second week of June (as we’ve seen on the charts).

It’s clear then that we’ve had plenty of opportunities to take advantage of the bullish psychology in Pinterest.

But let’s focus on the most recent one…

This happened a few days ago when PINS pulled back to the 34 EMA. That gave us an opportunity to take advantage of yet another long position by picking up the 19th of February 65 strike calls.

The idea behind picking up a call like this is not to buy it when it’s moving higher, but rather to pick it up when it’s moving lower. Or as I like to say “it goes on sale.”

So we buy the 65 strike as the market is moving lower towards that price. (Of course, as the market moves lower, those 65 strike calls can get less expensive.) Then we pick these up on average within the zone of 9.50 on the higher side and 8.60 on the lower side. Now in retrospect, having said this now, PINS has printed well above that. Plus, the path of least resistance has been upward for a while now, so that’s to be expected.

But it’s really about timing, Gang.

In order to be able to scoop up an 8.60 or a 9.50 65 call, rather than chase it higher, the idea here is to NEVER overpay. It’s very nuanced what we were able to do in PINS. But what’s so deceptive about that is when you have this approach, you don’t need to see a ton of movement to start seeing a profit.

That’s in direct contrast to a lot of other traders who are very dependent on big, big moves to the upside because they’ve already bought a big move to the upside.

When you pick things up on sale, you’re able to take advantage of more tiny movements. We don’t need a huge range or an explosive move to see the beginning of the return. That’s also why you want to look at calls that are 45 days till expiration (if not more). You don’t want to be in any form of a hurry or pressure.

1 thought on “Don’t chase calls higher”

  1. I call it playing “Money Ball” just like the baseball movie. I will drag bunt and single my way to beat you, or in this case make a profit. I learned long ago to take many small gains instead of sitting and waiting for the big pay day, or Home Run. A taxi driver told that he made more staying in the downtown area than sitting and waiting with dozens and dozens of taxis at the airport for the big fare rider. Less is more!

    Reply

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