Candlestick Trade With Cloudflare (NET)

I would like to welcome a few new readers. For the new readers, posting once in a while is something new. Before that I was posting everyday, sometimes multiple times a day. That’s when I was trading and posting my trades as I made them. I might get back to that sometime soon but for now I’m still not comfortable with the way the market is moving and I don’t want anyone mimicking my trades. I hope to get back to normal because I love Main Street beats Wall Street but I’m very worried with the political landscape and world events, and we know it’s news that moves the markets.

I exited a trade today involving Cloudflare (NET). I entered this trade on Monday the 17th. It was a small trade and could be considered a Grasshopper trade, however, NET is a higher priced stock, and I didn’t do a Covered Call.

While looking for a trade I noticed something on the candlestick chart. On Monday, NET was on the move along with all the cloud stocks. The stock opened at $66.67 and closed at $71.18, up $4.51. Toward the end of the day I made a very dangerous trade, but I was very confident it would be successful. While looking at the chart it looked like the stock was hitting resistance and would reverse from a recent upswing. This hypothesis was based on past performance, which is what technical analysis is all about.

I wanted to sell an option on the stock but I didn’t want to own the stock since I felt it was going to reverse. I decided to trade like my past days and make a trade with my favorite strategy, Naked Calls. With the stock in the $71.20 area I sold a 1 contract Call to expire this Friday, the 21st. For my long time readers, I know a 1 contract trade is not my normal trade but this is the way I’ve been trading in this market. This really isn’t a Grasshopper trade because Grasshoppers shouldn’t be making naked trades.

Let’s take a look at the candlestick chart I was looking at:

This chart covers the stock from the first of the year. The red horizontal line shows the resistance level. I inserted 3 red arrows showing where the stock went up to the resistance level and reversed. The green arrow points at a long green candlestick. This is Monday,  July 17th the day I entered the trade. The last long red candlestick is today which is where I exited the trade. The candlestick after the long green candlestick of the 17th is Tuesday, this is a doji candlestick which is a reversing signal. I was already in the trade and this candlestick made me very happy. The next day (Wednesday) the stock went up for a while but the candlestick ended as a Shooting Star candlestick. This indicates a downtrend after an uptrend. Today the stock has a long red candlestick and as I write the stock is down $4.80. My option expires tomorrow and if the stock stayed down below $72 I would keep the entire premium of $1.95. The way the market has been moving you never know what the stock will do tomorrow. With the premium at 20¢ I decided to do a Buy to Close, spend the $20, and exit this trade. I had a profit of $170 with no investment.

7/17/23 – Sell to Open 1 NET 7/21/23 $72.00 C @ $1.90 (+$190)

7/20/21 – Buy to Close 1 NET 7/21 23 $72.00 C @ 20¢ (-$20)

 Profit +$170

The odds are I could have held until tomorrow and kept the entire premium but I did the smart thing and took the profit. If I didn’t and the stock shot up tomorrow above the $72 Strike Price I would have to buy the stock and deliver it at a loss. When trading Naked Calls you better be disciplined and take profit because Naked Call options can end up biting you.

I took this $170 profit and bought 16 shares of MPW, my high dividend stock. I now own 1677 shares of MPW collecting a 10.5% dividend.

I have more to write about my dividend stocks which I’ll try to get out in the next day.

If you have any questions about my Naked Call option with NET send me an email.

 

Successful trading,

Steve

The Options Coach