On Thursday, I bought the $100 RBLX calls for a Friday Lotto Options play. I bought the calls for $1.40 and sold them for $3 the following morning.
Then I sat and watched those same calls go to $7 by midday!
I was kicking myself, but this was not my first rodeo. You see, when you get out of a trade on the way up, momentum will more often than not take the stock even higher. Trading is not a game of being perfect.
What’s more important is the reasoning for my trade and the repeatable setup. In hindsight, next time, I should let some of my position ride!
Here’s how I traded it:
Here’s What the Options did:
Now most importantly. here are the reasons for my trade:
The Metaverse is strong with this one. Roblox (RBLX) is fast becoming one of my favorite stocks to trade. After Mark Zuckerberg announced he would be trying to corner the Metaverse just like he did with social media, RBLX has been in play.
Fundamentals
RBLX was a hot IPO from back in March 2021. It is a platform that allows users to explore 3D digital worlds and allows developers to create, build, publish and operate 3D experiences. The platform grew users a lot during the lockdown, and even my kids played it.
Roblox (RBLX) has one of the most vibrant “Metaverse” communities for the younger generation. It has tons of users aged in the single digits to teens and now has more and more advertisers due to this audience. The audience is super engaged, and the stock has everything I am looking for from the Metaverse side!
After Zuckerberg announced his Meta, RBLX popped a bit on the news but sold off after that into earnings. The market loved the corporate earnings release, and that was the catalyst to send the stock much higher.
Earnings
Roblox reported a quarterly earnings loss of 13 cents per share, which beat the estimate for a loss of 14 cents per share.
Roblox reported bookings of $637.8 million, up 28% year over year, compared with an estimated $636.5 million. Revenue excluding deferred revenue came in at $509.3 million, up 102% year over year.
Roblox said daily active users in the third quarter totaled 47.3 million, representing an increase of 31% year-over-year.
The company said that hours engaged were 11.2 billion during the quarter, representing an increase of 28% year-over-year.
“Engagement is our north star. We’re very pleased that during the third quarter, people of all ages from across the globe chose to spend over 11 billion hours on Roblox said David Baszucki, Chief Executive Officer of Roblox.
This news sent the stock soaring, opening up over 30% at $99.60 and closing the day at $109.52. I made a great trade into earnings, but there was another great trading setup that followed soon after.
Technicals
I don’t want to buy on day 1 of strong earnings. I want to wait for day 2 because a lot of people get shaken out on day 2 as algo’s and sellers run stops. I wait until a base is formed, where I can control my risk, and then it’s likely we’re off to the races!
The Trade
I bought the $100 calls late Thursday that expired the next day, Friday. It was a Friday lotto options play for me. We’d sold off quite a lot post earnings and had the base I was looking for. I also noticed a lot of call buying at the $100 level.
The next day the RBLX gapped lower, but then the stock had a classic trend day, and RBLX was up $10 low to high.
I sold my calls before 10 am on the opening drive on Friday. But man, I shoulda coulda held long as the stock continued higher for the rest of the day.
I don’t have a fear of missing out for long. Getting out too early is a part of the game. However, next time I will definitely try to hold on to some of my position for longer.
What Next?
I think RBLX is going to make a new high of over $110 this week!
This breakout pattern is something I’ve seen quite a bit where there is a huge jump in price, sellers come in, shake the tree, and build up more shorts. The base has been made at $95, and these types of stocks have a tendency to make new highs after they’ve established one on strong earnings.
I want to get long longer-term, but I don’t want to chase the stock. I will maintain my discipline and look for a pullback to get back in the trade at favorable prices.
Bottom Line
I don’t want to buy on day 1 of strong earnings. I want to wait for day 2 because a lot of people get shaken out on day 2 as algo’s and sellers run stops. I wait until a base is formed, where I can control my risk, and then it’s likely we’re off to the races!
I made a trade on a Friday lotto options play in RBLX. I got long late Thursday and was out on an opening drive Friday morning.
Then I watched the stock go even higher the rest of the day, which got me a bit upset. I don’t have a fear of missing out for long. Getting out too early is a part of the game.
However, next time I will definitely try to hold on to some of my position for longer. The main thing is that I had great reasoning for my trade. I don’t have fear of missing out, I have fear of losing my trading discipline!
