Closing Out Option Trades for Triple-Digit Profits
Chris Johnson and Jon Lewis, August 21, 2009
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Dollar Tree (DLTR) Exit Plan
On Feb. 6, we recommended buying calls on Dollar Tree (DLTR) following a sell-off in the stock after earnings. At that time, we identified $41.50 -- the location of the stock's 50-day moving average -- as a potential exit point for our option position. Reviewing the chart, DLTR had been extremely reactive to its 50-day moving average as a catalyst for support and resistance.
Following this approach, we issued a sell recommendation to our Winning Edge subscribers on March 4, when the stock ran into its 50-day trendline, which had declined to just below the $40 level. The results? Our option position returned a 61% profit. Could the stock have moved higher, resulting in a better return? Of course. But for our purposes -- and our subscribers' collective sanity -- we followed the technical approach for exiting as it provided a logical, reasonable and profitable closeout.
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