If at first you don’t succeed, trade, trade again? Well, not usually. But today on Lululemon (LULU), that’s exactly what I did. (March 28, 2019)
LULU
Luluemon ( NASDAQ: LULU ) gapped up. Last night, they reported really, really solid earnings and the stock was trading at about 160.00 after hours. I was surprised that this morning it opened up closer to 170.00 and then ultimately traded above that level.
I tried a short; I shorted the stock right around here, I mentioned that in the forum, somewhere just a little bit below 170.00. And then I went ahead and put my stop, it was a tight stop, and then I got on with my day. A little bit later I get a “ding” and I saw I got stopped out on my stock, that’s the end of that.
The idea was, this is a total high probability short. Because if you look at this stock, 3 standard deviations is nuts; this thing closed, actually, like 4 standard deviations above the 20-day moving average. That’s a huge move. It is almost mathematically impossible, emphasis on the word almost. It is almost mathematically impossible for the stock to keep going higher; it just doesn’t happen.
Now, if it does these Bollinger Bands are going to expand to where they are literally going vertical, they are chasing the price up. But typically on something like this you can expect the stock to retrench a little bit. So you can say, “Okay, if you are telling me that Dan, why did you get stopped of your position? Why aren’t you more confident in it?” I will tell you, because this was meant to be, essentially, a day trade. I am not fighting against stocks; I am not battling the will of the market.
I know that Luluemon ( NASDAQ: LULU ) or any other dang stock out there doesn’t care, I think it doesn’t care if I am long or short. And I don’t want to be right I want to make money. And so I got stopped out of this short; a very small loss and I will learn to live with it. Because then you know what I did later on in the afternoon, and it has nothing to do with, Luluemon ( NASDAQ: LULU ) got me, I am going to get it back. No, I am not revenge trading. I am just looking at statistics, probabilities; I sold a bear call spread on this. I went out of the money and sold a 175.00, 180.00 bear call spread; I think it was for about $1.70 or something like that, which is about a third of the spread between the short call and the long call. That is a pretty good risk/reward here.
The probability of me making money on this is actually really, really high. And so that’s how I am trading a stock like this. The day trade that I had didn’t work and so I got out of the stock. And then as I am looking through my charts going into the close I see that this comes up on one of my, gaps too high to continue scan, and I am thinking, you know what? I will trade this thing again. And so that is what I have done; I have got a short 175.00, a long 180.00 call for a small little credit. If I can get 50 percent off of that, that is the old tasty trade way, if I can get 50 percent off of that, I’m a happy boy; that’s how I am trading Luluemon ( NASDAQ: LULU ).
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