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, we are getting a decent dead cat bounce in the markets. As I write this, the S & P 500 is trading about 37 points higher.
I would like to suggest a trade on a former market leader.
That stock is Facebook (FB).
FB peaked at about $219 per share in July. And a few days back, it hit a low of $127.
It is trading back above the lower band on the daily chart and this to me suggests the stock should bounce.
My suggestion today is this:
Buy to Open February $135 Call for $10.60
Sell to Open February $145 Call for $5.90
The net debit will be $4.70 per spread with a maximum return of $5.30 per spread.
Based on the nominal portfolio, limit the position size to a four lot.
Based on a four lot, the total cost will be $1,880 or just under 2% of the portfolio.