On Dec 28th I blogged about Best Buy (BBY) dropping 20% after earnings and that the drop seemed a bit excessive. I also talked about how there is always doubt when you are about to pull the trigger for a trade…and then you have decide whether to do a stock or an options trade. Well, I did both.
Like most people I have the need to balance making income in the markets as well keep the risk in check. Based on portfolio management I learned here at OptionsANIMAL, I took on a conservative position in BBY (an ATM Covered Call with a Jan $34 Short Call) and I also took on a more aggressive position with longer dated Long Calls options in BBY.
In my conservative trade I am looking to make some income, about 2-3% in a month typically. So far I am up 1.8% in 18 days and looking to close the trade soon.The more aggressive call option trade can easily make 20% or more in a month by contrast. So far I am up 19% in 12 days in the aggressive trade and looking to get at least 30% out of it.
Technical analysis shows that the stock is hitting short-term resistance at $35.91 (its 20 day Exponential Moving Average EMA). I believe the stock has more to go but acknowledge that it may go sideways or even reverse for a few days. Having an exit plan before I started these trades allows me to navigate the future movement in BBY rather than panicking and selling at the first sign of trouble. If BBY starts to slip, I will make adjustments based on the plan that I have written out. Options education and knowledge of your stock is key to this type of trading and making successful adjustments.
Hope you also had a good start to the New Year and good luck with your market endeavors for 2011 🙂