Traded on 12/20/07 at 2:48 pm
Being 1 day away from expiration, I decided to paper trade this bearish diagonal. This is the first time I have opened a trade 1 day before expiration, so I needed to test it out before trading it in my client’s account. If you are new to trading, I highly recommend you paper trade for at least 3 months successfully before you go to real money. Although it is paper trading, treat it as though it is real money. This makes a crucial difference in the way you will trade in this account.
During a trading session with my trading partners, we saw a price pattern called a descending triangle (see chart) on DRYS. This is where the stock creates a defined support line and then and lowering line of lower highs. They both eventually meet at a point and this technical signal usually indicates a bearish move, it’s just unsure of exactly when that will happen.
I bought 1 contract of the Jun 100 put for $34.90 and sold the Dec 75 put for $3.80 giving me a total debit of $31.10.
Max Profit:
If not called out: $3.80/34.90= $380.00 = 10.9% in 2 days
Max Loss:
Stop loss set at $ 24.88 (20% loss)
Exit:
I will roll the Dec into the Jan tomorrow on expiration day.
