Recent trade on CHAP

I want to start off this morning with a recent trade that I made on Chaparral Steel (CHAP). CHAP has strong fundamentals and is growing at a good pace. I was watching the stock for a good entry point to make a very short-term option trade.

The following analysis is from Jan 10th and 11th.

I saw strong support at 43 from the old resistance in Oct, the break in Nov, and the bounces in Dec and Jan. The MACD has pulled back significantly from the previous uptrend and was providing a bullish crossover. The Stochastics were also low and providing a bullish crossover . This stock seems to have respect for the 30d SMA so my target was just below 46 (confirmed by most recent high).

I was looking at the stock as a 10% trade. The stock has great fundamental numbers and is in a longer term uptrend. The recent pullback to the 43 support area and the white candle following the hammers (confirming the hammer from the previous low) looked like a real nice bounce that could easily run to 45.5. With a possible 1 point move to resistance I could easily get a 10% move on the Feb 45 call (only 3% overvalued).

I ran the numbers and placed my orders at night BTO @ 2.00 triggering a STC @ 2.25 ... A 10% gain after commissions. The BTO was filled at the open (stock @ 44.12) and the STC was filled just 40 minutes later (stock @ 44.71). A nice confidence builder and an extra couple bucks in my trading account. Exact numbers = 9.8% gain on a 1.3% move. My flaws on this trade included no downside protection, I did not have a stop and a move against me would not have been avoided. The stock ended the day lower, but I had already taken my profits off the table.

The stock rallied the next day to close just below the 30d SMA which the stock seems to respect. A break and close above that level could trigger a new bullish trade on CHAP. It is more likely that CHAP will bounce off of that line and start a downtrend.