VPRT - Hot off the Press for my First Trade of 2011
VPRT has been on my watch list for a long time. Recently the stock has been following a general uptrend with pullbacks to the 30 day MA every 2 weeks or so. The oversold indicator I use, Williams %R Showed it to be oversold on Jan 21st. Watching the closing price, Jan 24 looked like the day to move.
Checking the Fundamentals
I always cross check my companies first by using resources such as the IBD and Investools. Here is what each had to say about VPRT. While the financials remain strong, the industry group (Printing Services) has been pulling back…this is one red flag. Despite that, the industry as a whole has also been in an uptrend for the past few months.
Investors Business Daily doesn’t have promising vital signs either…the composite rating is only a 68 and the industry group receives a D+ for it’s relative strength rating.
Overall, it’s a risky trade when the fundamentals are taken into account on top of the technicals.
Managing Risk - Emotions Sometimes Rule
Breaking all rules, I decided to purchase VPRT…I’m anxious to trade and the technical pattern looks wonderful!
Here is the purchase I made:
April 47.5 Call
Trade Price $3.30
Delta .42
Open Interest 198
Underlying Stock: $45.76
Support: $42.26
Risk: Underlying $3 Option $1.26 (%age of account = ~4%)
Target: $3-5 in 2 weeks time
Update- Beating Earnings Estimates
As of today’s close, 1/28, I’ve held the trade for 5 days.
Underlying closed @ $49.45 after exceeding earnings estimates.
Option Price is $4.90, a gain of $1.60, or 48% gain in the 5 days I’ve held it.
This is a 5% gain in my total account value.
Decision Points - Setting a stop loss
I’m very happy with this amount of gain, and shouldn’t get greedy. I’m going to set a stop loss at recent support, which is about $48.27, drawn as a line connecting recent highs. This allows for a pullback of just over a dollar, and with the current delta at .5, the option pullback is about 50 cents.
Learning points to current time
This is a risky trade to start with due to the underlying weakness of the industry group and relative lack of relative strength. However the company still has strong financials and has been an uptrend for several months. I purchased the option just 4 days prior to quarterly earnings estimates which was probably not a smart idea, but I got lucky and the stock went up several points today.
By setting a stop loss at the previous high, I should still lock in some potential profit while limiting loss, and still allowing for earning’s momentum to carry the option even higher. I have 72 days until expiration, so here’s keeping my fingers crossed!
Suzanne @ January 29, 2011