I need a system in place to log my reasoning when entering a trade. I just bought a very long term debit call spread on MA – that's Mastercard. I jotted down on paper the calculations while preparing for this trade and I need a permanent place to look at this important info when the market gets crazy and moves fast.
I then use my thoughts when I bought as a tool to prevent me from getting out too early or trying to hedge prematurely.
I'm not sure if this is a product on its own as in mytradinglog.com or a part of chartly.com which will have several tools and this will be one of them.
Anyway, until I have this sorted out, here is my reasoning:
- In my home made list of ranked stocks based on Magic Formula Investing, it is in the top 20%, or in other words - the top fifth of the universe of stocks.
- When checking for Rule Number One criteria, this is a great company with steady multiyear returns and growth in equity and profitability.
- On a technical note, I usually look at long term – 3 to 5 years weekly candlestick charts and on this one I noticed a very interesting chart – It is quite boring, I didn't mean to contradict myself, this is a rare case where a predictable chart with a good growth slope and very low variability is a good thing.
- I guess I got tired of waiting for a temporary dip in the stock price, if this will happen, I will reassess and and might increase my position.
- I estimate the price to be at around 730 in a year and a half – that's a 22% more than today or 14% annualized return which is half of the conservative growth rate of the company in the previous 4 years.
I bought the Jan 2015 $700 call option and sold the Jan 2015 $730 call option, this sale is coupled with the buy so the margin requirements are limited. The default calculated price for this combo was $1005 based on the high price for the buy and the low price for the sale. I put this as a limit order at the cost of $880 and was immediately filled. I guess I should have tried a lower limit.
Anyway, the potential is the difference which is $30 x 100 divided by the cost of $880 and the potential gain is 240% in a year and a half. Perhaps sooner.
Of course, if the stock moves fast, I might add other options to protect and lock in some of the profit earlier without limiting the additional profit potential.