The back story: Throughout 2017, a call-option strategy known to many as a breakout play worked very well. The idea here is to find stocks which are closing with hammer candles on daily charts at 52-week highs, buy short-term call options on them around 3:30pm EST, then sell as soon as you can the next day.
This worked extremely well up until August, when breakout plays just went away. Suddenly, the follow-through was gone. The “buy the rally and grab your 10 to 20 percent profit the next day” trades stopped being reliable after seeming foolproof all year.
What I’m seeing now: Based on this week’s market action, I’m thinking these trades might be back. Not wanting to risk real money on a test, I identified two breakout charts, Micron Technology (MU) and Activision Blizzard Inc. (ATVI), and then watched the price action.
How I will play it: If it works today, I will be bringing back the breakout trade. If not, I’ll continue to wait, but with markets rallying hard here, I’m ready to swing at the next pitch if and when the breakout is back.
Davis Martin is the head trader at DailyProfitMachine.com. He trades SPY Calls and Puts and swing trades mid-large cap stocks and stock options. At the time this commentary was published on RagingBull.com, he had no open orders on MU or ATVI and had never traded either before, but he was looking at the possibility of turning paper trades into the stocks into real trades if they move as described in this commentary.