While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
That stock is Ciena Corp. (CIEN).
CIEN reported last Thursday and was up 8% on the announcement.
As I write this, CIEN is trading around $22.50.
The front week options are fairly active, but I am not going to suggest that series.
After the front week, we need to go out to October 21, to find active options.
My suggestion is going to be a debit spread.
Buy to Open the October 21st-$22 call for $1.39
Sell to Open the October 21st- $24 call for $.52
The net debit will be $.87
The maximum return will be $2.00, net of the $.87 or $1.13.
The advantage to this strategy is that if CIEN drops a bit further, I will suggest we close out the short $24 calls.
For the tracking portfolio, I suggest you trade a 20 lot or a total of $1,740.
This represents a 1.7% allocation, with maximum gains of $1,113.