My First Day Trading Lesson

This morning I made a Day Trade using a strategy I’ve been studying. The strategy involves a “gapping stock.” I gapping stock is a stock that is up or down a large amount at the open.

The gapping stock I made a trade with today is Marin Software (MRIN).

Yesterday the stock closed at $5.69. After the close the company announced that they signed a deal with Google. This morning in the pre-market the stock was up big. The stock opened at $10.58, up almost 100%. This is a gapping stock and exactly what Day Traders look for.

When a stock gaps up this much it’s almost certain it will sell off a bit with profit taking. You never want to get into a position on the opening candlestick. The first few candles will be very volatile. I got into my position about 10 candles into the day. That would be 9:40. By this time the chart showed me that the stock would be dropping. I tried to Short 1000 shares at $10 but the stock is listed as hard to borrow (HTB) and I couldn’t get filled. There were probably millions of traders trying to Short. Since I’ve been doing this for 30 years, I quickly went to the options. To my disappointment, the stock does not have weekly options. I decided to Sell to Open 10 contracts of the MRIN 10/15/21 $12.50 Calls. This was a Naked option, and it’s also a Short position. I received a premium of $1.80. That’s $1800.

I went with the 10/15/21 Expiration Date because that was the next date available. The Strike Prices listed were $10 and $12.50. The stock was at $10 so I didn’t want to sell a Naked $10 Call going out to 10/15/21. If I was wrong and the stock started to go up I could get into trouble. I went with the $12.50 Strike which gave me breathing room. The stock would have to go up a lot more before I would get into trouble and have to cover.

I was correct with my prediction and the stock continued down. With the stock in the $8.50 area it looked like it hit support. I looked at my premium and it was at $1.15. At this point I was in the position for about 25 minutes. I got into this position as a Day Trade so I was looking to get out. However, I could have stayed in until Oct 15th and kept the entire $1.80 premium. Since it was a Naked Call I didn’t even make an investment. I decided to jump out and lock in profit. I did a Buy to Close for $1.15. I received an $1800 premium and I spent $1150 to close the position. My 25 minute profit was $650.

9/22/21 – Sell to Open 10 MRIN 10/15/21 $12.50 C @ $1.80

9/22/21 – Buy to Close 10 MRIN 10/15/21 $12.50 C @ $1.15

Profit +$650

I’ve been doing very well with my Day Trading. The strategy above is great during earnings season. When a stock announces earnings many times it will gap, up or down. If a stock gaps down the same thing happens. If a stock drops too much many times investors will see a buying opportunity and the stock will move up.

If you have any questions on this trade send me an email.

 

Successful trading,

Steve

The Options Coach