Establishing a Motive
*enlarge this picture to see it fully
- Downside break-out
- Buying Trigger-point
- Return to Value
Short selling carries with it unlimited risk, because there really is no ceiling for how high a stock can go and with that being said there should be objectives for where to cover, or at least anticipate where the buyer will act.
I have shaded in a series of covering points for where to exit a short position in NFLX.
The box above at the top of this chart between 423 (all time high) and 390 is what we are using as a measured move for determining how far down it should pull back. The height from bottom to top of this rectangle is 66 points.
The buyers are losing their grip. Each one of the trigger points is where we believe there could be either new buyers, former buyers adding to positions on pull backs, or shorts like myself covering positions out of the need to be careful.
The return to value here is at the base of the range at 305! I know it may sound extreme but who can really be totally sure what news will come out in the next few days and weeks that would impact the stock.
A good goal is to take today's break out point at 390 - 66 and cover right below the second horizontal line at 326-327
This is how we would approach this from the parameters of risk and reward.
Holding period: 4-5 days
Gain 35-50 points
Loss: 25 points
If there is any chance NFLX would go to 500 or even more we would not want to be short, but the beautiful thing is how it already started to show some early phases of a topping pattern yet to be confirmed.
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