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Trading Options and Managing Expectations

Wanted to write up this piece to show you how to approach trades during times of market uncertainty. Although our analysis utilizes technical analysis sparingly, we do provide explanations for those who trade off charts.


Below is a trade idea we suggested for American Airlines $AAL


Prior to this alert the market underwent a decent pullback and new highs were expected. We alerted on several "reopening" names given research and analysis. $AAL was one name on our list and we issued a trade alert on 3/30/2021.


Below is a chart of $SPY with the alert from 3/30 highlighted:

We understood the various rotation occurring across sectors and the correlation many "reopening" names had. However, we wanted to manage expectations for some of these names.


Steps we took:


1. We instructed members to scale into this name initially and add at major breakout points and then scale back as expected pullbacks occurred.


2. This is exactly what we did as the symmetrical triangle began to develop and we highlighted to members on 5/14 to get ready to add full positions on breakout.


3. On 5/28 we notified members to caution as major resistance was overhead with a potential to form a "double top".


4. We stopped out completely on 6/09 to secure profits.


5. Nonmembers and those new to trading who simply entered the call options blindly(never a suggestion) are given enough time for this to play out regardless.


Next Steps:


5. We are now looking for the next pattern to develop and will scale in once more if price rebounds tomorrow swiftly with strong volume.


6. If further downside continues - potential patterns to look out for will be an ascending triangle or consolidation channel shown below. For more experienced traders, the other bullish pattern you may be considering exceeded the percentage threshold today making the pattern more prone to breakout failure. This warrants some caution when entering but pattern can remain in tact if current price level sustains, rebounds and closes over $24.30 with volume.




Until next time!


-J


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