PurelyTechnical

A review of a recent bullish Options Pick on XTO Energy (XTO).

Setup:

XTO was showing a positive divergence on RSI in early August, when this trading pick was opened. Given that the stock had seen nary a retracement during a 45% drop that spanned 6 weeks, a dead cat bounce, if not outright reversal was seen as a strong likelihood and, as such, there was going to be no beating around the bush - an at-the-money front-month Long Calls strategy was featured.

Result:

The stock sauntered sideways for a week and a half, before blasting off - moving over 15% in two and a half sessions - to hit our target of 52.50.

Profits of over 130% were booked, exactly two weeks after the trading pick was opened.

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Trade Details:

The stock chart, trade notes, p/l diagram (if any) and implied volatility chart (if any) associated with the trading pick, have been provided below for posterity.

Aug 21: Perfect. Target has been reached a little sooner than expected and that works out well. Profits of well over 100% on the trade. 

Aug 20: Nice move. Hopefully, we'll get the chance to book profits soon.

Aug 7: The Calls were trading at around 3.30 when the stock was trading near the level of yesterday's close today. See p/l diagram below.

Aug 6: XTO is deeply oversold. RSI is showing a potential positive divergence, MACD is showing a potential MA crossover. We'd look to open a few at-the-money SEP Calls tomorrow.

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The illustration featured above was a recent trading pick available to members of TheMarketMessenger.com.

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