Hello Traders,

I started a new trade on Friday and would like to share the thought process behind the trade.  I have been looking for some good opportunity spread trades to take and I like the volatility in the Biotech Sector.  I entered a trade on Friday in Celgene (CELG).  Here are the trade details.

Active Position:

CELG Bull Credit Put Spread 10cts APR1 15 116P/111P  DTE: 7  Break Even: $115.23

Trade Prices: $1.15/$0.38   Total Credit Received (Max Gain): $0.77 ($770)   Max Loss: $4230

The above chart is my quick highlight of the trade. You will see with the red dotted line a lot of good support for CELG near my BE point. That is the reason I chose the 116P knowing I would collect some premium and lower the BE to that support level. Over the next 4 trading days this week if CELG remains in the green I make max profit. There is some resistance at the 50DMA (Blue Line) and top of the channel at $125. If CELG breaks the recent high close at green dotted line I would be getting long on CELG again with another trade. The next chart is of the Biotech Sector ETF (IBB).

This is to provide a little more info why I like the current bounce and willing to attempt this trade. There was a significant sell off with lots of volume. Very impressive actually. I was looking all over for what I was going to short if support levels broke down. You can see the red trend line that I inserted that has shown great support since DEC. It has been tested multiple times and held. You can see on the second day of huge volume on MAR 26th it held the trend line and closed higher. On Friday IBB continued higher just like CELG hitting its support and reversing. The other key support that is being shown is the blue 50DMA line that is right on the red trend line that I have on the chart. This is huge support also. Ok, to the upside I feel if IBB continues above the green resistance line it should retest the highs and if it fails IBB will probably form a trading range in this area.  I am going to be very aggressive in using the support level in this chart and CELG as a mental stop and move away from this trade if broke to the downside.  I do believe over the next 4 days this trade should do fine as long as there is not a big down move in the market. If broke to the downside the Biotechs will be in big trouble and we should enter short positions in that area.  I don’t see that happening in the next week.  There is always the market effect though to watch out for.  Only major economic news should be the jobs report on Friday and the market will be closed for the holiday, and this position will be done.  In fact, if there is one up day the time premium is going to be sucked right out of this trade and I should be able to manage as a winner.  Trust me.  I will not hesitate to lock in a win on this trade.

Happy Trading,

Option Coach