I have continued to implement bullish strategies on the stock, as posted in my previous blog articles, but today, I took a short-term bearish move, one I hope that will pay off. I didn't time it right, but I wrote an in-the-money call hoping to capture intrinsic value and the time value. A March25 130 weekly call option for $2.50 was what I received. However, the option is now trading at $3.60 and continues to push higher.
Many people are hesitant on buying stocks at 52-week highs for psychological reasons. Personally, I take little stock, no pun intended, in that. However, when the shares of a company are this high above the Bollinger Bands, it is more likely than not that it will correct back into its consolidated trading range determined by the bands.
Bollinger Bands create and display a trading range based on the volatility. Stocks near the top of the band are said to be overbought, while stocks near the bottom are said to be oversold. This is one of the most common technical indicators used by traders.
With that said, stocks trading above the Bollinger Bands do not necessarily correct. It is highly possible that the bands will extend upwards due to increased volatility, as currently seen. The stock could hold in the low-130's for a week while the bands expand. The Bollinger Bands are moving upwards as noted above, so it is possible shorting the stock may not be profitable, hence why I wrote an in-the-money call option, which serves the same purpose with the added benefit of disintegrating time value.
As always, I am not a licensed or registered trader, broker, or representative. The above post is a summary of my trading for the week and are ideas of ways to make money in the market. It is not meant to be taken as investment advice. Always consider your investment objectives and needs before implementing any strategy. Always talk to your advisor.
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