Kicking Myself for Missing the CAGC China Agritech Inc Put Option Trade

I really hate it when this happens.  I a couple days ago I wrote about the rare bearish tri star candlestick formation that had formed in CAGC after the enormous 130% + percent run up in only 1 months time frame.  After I wrote about it, I took a little bit of time to see what the March Put Options were doing on CAGC.  I was eyeing the March 25 out of the money put on CAGC which at the time was trading somewhere near .20 a contract.puts

So then I was thinking to myself how great a potential short term trade this would be in CAGC if it could somehow get to 25 or at least close to 25.  But then I started doubting the trade since it only had till the end of this week till expiration and I feared that the bearish tri star would not evolve into a bearish follow through soon enough.  And I really thought it would be a long shot for CAGC to get all the way to 25 with only a few days remaining until expiration.  Also in the back of my mind was the persistent resiliency of CAGC and its ability to hold up strong.

In the final analysis my little fears and doubts and failure to pull the trigger on this trade (ie. actually taking the trade) was a big mistake because it ‘could have’ led to a 400% to 800% profit in only 2 or 3 days !!!

Ok, I will stop whining about missing this one.  Perhaps writing about it is somewhat therapeutic.  It helps to clean it out of my system.  And maybe there is a useful lesson in this post.  And that is, not to let your missed trades nag on you and make you feel regretful for too long a period where you hold grudges and think maybe you deserved to have that trade etc etc.

But the setup on this trade was very powerful.  The rare bearish tri star candle stick combined with the 130% 1 month run up was a very strong argument for a put option or short sale on CAGC.  Lesson learned. 

Incidentally, Goldman Sachs (GS) also had a bearish tri star that looked similar to the current CAGC pattern and had similar follow through to the downside back in October of 2009.

The put option trade setup that existed in CAGC points to a larger potential strategy of attempting to trade select put or call options just one week before expiration.  By focusing on option trades just one week before expiration you have the potential of getting maximum leverage because most if not all of the option premium is out of the option price.  So then it becomes a question of whether the stocks price get put the option in the money right before expiration.  It it can, then it can lead to very big profits.  If it cannot, then the option will expire worthless almost immediately.

It is a very high risk strategy, but may be worth pursuing with a tiny amount of capital because even a small $200 to $500 trade can lead to huge potential returns.

But of course for this strategy to work correctly the timing of a stocks move needs to be extremely precise and the setup really needs to be almost flawless.  It definitely helps if there is also some type of forward looking news event that can really give price a big extra push.  But it is a lot better if the news event has a lot of meat to it.

The CAGC put option trade 1 week before expiration was about as good an example of this as I can think of.  You had the bearish tri star, the huge over done 130% run up, and an MACD that was crossing down. The news catalyst in this case had already occurred (holder files to sell 3 million shares).

Incidentally I am going to set up a google calendar reminder to send me an email every month 1.5 weeks before option expiration.  That will help remind me to be on the look out for volatile stock price moves the week before expiration.  I already have a monthly google calendar reminder set up that tells me to look at the long term natural gas futures contract chart so that I will be prepared for the possible eventual double bottom in that contract and a possible huge buying opportunity in the UNG.

I highly recommend you also use the http://www.google.com/calendar as a way to remind yourself of important events on a single or recurring basis.  Just click on a day and then select ‘edit event details’ and then set it up to send you 1 or 2 email reminders. It is one of the most useful internet tools I have ever used.

Posted in Market Timing, Online Trading
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