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RL Closing Trade

A little over three weeks ago we entered into an option spread in RL. We discussed the logic of the trade which was based on the possibility of an ending diagonal Elliott wave pattern.  We also identified at the time a price level that would invalidate the pattern and today RL traded above that level.  So at this point, we can no longer justify the trade based on our original entry criteria.

We had a few reasons to be skeptical at the time and that is one reason why we used a spread position designed to minimize our risk.  One thing we were anticipating did come to pass, RL spent several weeks building a base before exceeding its prior high and that has minimized the impact of directional price movement on our losses.   We sold the spread for $2.10 and right now the midpoint between bid and ask is $2.35.   So for our five contract position we’re likely out only $125 if we cover now.

RL is off its high of the day and this seems an opportune time to take our loss.   It is possible that it works its way lower from here or, if not, at least spends more time helping our position.   But we aren’t going to trade too much on maybe.   This was already a maybe trade from the start.   That is why we structured it the way we did.   The traded thesis didn’t play out, but the risk containment did.  We won’t fight for more and will take our loss.   we’ll try to cover for $2.40.  If we can’t get it by the end of the day then we’ll exit at the market.


This is a fictitious model portfolio managed to demonstrate trading techniques which may be used to trade a speculative account. The description of this hypothetical transaction is for education purposes only. Nothing related to the portfolio should be interpreted as a recommendation to buy or sell any security and the general techniques employed may not be suitable for every individual. Past performance of these techniques or this portfolio may not be representative of future results and results shown may vary from actual, live trading results subject to commissions and live market conditions including liquidity.

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