While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
Today I would like to make a suggestion on a homebuilder. In fact, we caught a bit of the upmove with a covered call trade not too long ago.
Today, I would like to make a short trade because it appears to be reversing to the downside.
With a short trade I don't want to go out too far in time, but I will suggest the December monthly options.
My suggestion today is this:
Buy to Open December $25.50 put for $.80
Sell to Open December $24.00 put for $.35
This will result in a net debit of $0.45 per spread with a maximum return of $1.05 per spread.
Based on the nominal portfolio, limit the trade to a 10 lot or about .5% of the portfolio. Total cash risk is less than $500 with a potential gain of $1,000.