15 May

AAPL Bull Put; My Risk Appetite Determines The EMA To Sell Below

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Hey guys and gals,

Wow, what a crazy turn of events yesterday. Stocks actually sold off in the morning session and ended on a high note.

Could the market finish higher at these levels?

We’ll see if the “buy the dippers” continue to step in.

Now, I’ve noticed that the QQQ (the Nasdaq-100 ETF) has been the strongest out of the major market ETFs.

So yesterday, I actually wanted to play the dip in Apple Inc. (AAPL) — and today I want to show you how I was able to notch my sixth win in a row with my Weekly Windfalls trades.

The reason why I was able to spot the bounce in AAPL?

I just looked at my charts and uncovered an area of value — which I actually explain in detail, in this exclusive video.

How I Use Moving Averages To My Advantage

You probably already know that I love to use charts when it comes to identifying entries and exits. With the trade in AAPL, I actually used the exponential moving average (EMA) to uncover an area in which I thought there was value…

And boy was I right.

I know what you’re probably thinking, “Jason, what’s an EMA?”

Well, you’ve probably heard of moving averages before… and typically, traders will reference the simple moving average. Now, with the simple moving average, it takes the average price of a specified timeframe.

For example, a 200-day SMA will add up all the closing prices (or open, high or low, depending on which setting you use) over 200 days, then divide by 200. Thereafter, it gets plotted on a chart over a rolling window.

On the other hand, there’s the EMA actually places more weight on recent prices. If you think about it, technical traders may care more about what happened over the past few weeks more than what happened, say a year ago. 

For me personally (and many technical traders out there), I like to reference the 8, 21, and 34 EMA.

Why?

Well, they’re actually part of the Fibonacci sequence — and I’m a firm believer they can help me identify key entry levels (but that’s a lesson for another day because I want to keep things simple right now).

Now, here’s what I sent out to Weekly Windfalls subscribers yesterday morning…

I’m referencing the 8 EMA at $305 as support followed by the 21 EMA at $293. Depending on how much more the markets dip Thursday will determine which area I sell Puts below. Right now I favor further out of the money so the 21 EMA for next Friday. $2.50 wide on my AAPL trades and maybe 30-40 contracts.

Source: thinkorswim

Now, at the time, AAPL was trading above $300… and if you look at the daily chart below, you might get a better idea of what I was looking at here.

With this specific setup, I believed AAPL would stay above the 8-day EMA (the blue horizontal line above) because that tended to be a key support level recently. Now, if AAPL broke below that, the next line of defense, in my opinion, was the 21-day EMA (the green line above).

Now, with this specific trade, I actually wanted to sell a put spread. What that means is I wanted to place a risk-defined trade to collect premium… and I was betting AAPL would stay above a key level.

More specifically, I believed that AAPL would stay above $290 before the options I sold expired (which was next Friday).

Of course, if you look at the chart above, AAPL broke slightly below the 8-day EMA and rebounded right off of it, closing at $309.54. I actually used that pop in AAPL to take profits… 

That’s how I was able to lock in a quick 13% return and notch my sixth straight win with my Weekly Windfalls trades.

Now, if this all sounds unfamiliar to you at first… that’s okay because it did to me as well. However, I stuck to it and believe I’ve developed an edge, which I detail in The Wall Street Bookie.

If you want to learn more about how I use a risk-defined strategy to collect premium, then you’ll want to claim your complimentary copy here.

 

 

1 Comment

  1. David L

    Jason – Really love these detailed explanations (with repetition as you go – important!). And for those of us starting, and starting with smallish accounts, your new sleep-at-night approach is perfect. Steady small wins is a great confidence builder, and great trading period.

    Reply

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