Andrew’s Pitchfork and Vertical Call Spreads
What’s up, VWAPians!
8-Baller here…
I think the Warlock found the trade of the year yesterday during his Warlock’s World live stream.
I’m talking about the trade in Veru Inc (VERU).
When the stock broke VWAP shortly after the market opened, it was trading for $5.79 per share.
And the stock ran to a high of $14.57 on the day!
Finding these kinds of crazy names is exactly what the Warlock is going to teach on Saturday, April 16th for Define Your Trade.
Here’s part of what I saw when I was breaking down VERU during the Daily Decode…
Andrew’s Pitchfork on VERU
When I was breaking down VERU, I drew this pattern on the 1-minute chart.
This is called an Andrew’s Pitchfork.
An Andrew’s Pitchfork is a technical indicator that uses three parallel trend lines to identify possible levels of support and resistance as well as potential breakout and breakdown levels.
And look what happened when the VERU share price hit the top end of the pitchfork range – it broke out.
For me, that’s a signal to go long. But there was another indication for me as well.
There was a tell. Increasing volume. The stock was breaking through the balance of the Andrew’s Pitchfork.
Now let’s say you wanted exposure to this stock, but you’re trading with a small account, under $5,000.
It’s possible to gain exposure through the use of option’s contracts.
When the stock was trading around the $7.75 range, 5 contracts of the $7.50 call at $1.20 per contract would have cost you $600.
That’s 10% of your account.
To avoid the pattern day trading rule, you could have sold the $10 calls for $1.50 per contract.
At that point you have created a $2.50 debit call spread for $0.30 a contract.
It’s $2.50 because of the difference between the $7.50 and $10 strikes.
This type of spread limits your upside to the difference between the strikes, but can severely reduce your cost of entry.
So your maximum gain is $2.50, or $250 per contract, MINUS what you paid for the spread, or $30 per contract.
For this trade, the max gain would be $2.20, or $220 per contract. That’s over SEVEN TIMES what you initially paid for the spread.
While your upside potential was CAPPED, this type of trade also severely reduces your DOWNSIDE RISK.
A big part of what we teach in Warlock’s World is MANAGING RISK.
Warlock likes to say that all VWAP trades are risk defined.
That’s a big reason why he named his class on Saturday, April 16th “Define Your Trade.”
It’s our goal, as leaders of the VWAPian community, to educate ALL facets of VWAP trading.
And defining risk, for accounts of any size, is of the utmost importance.
That’s why it’s not just important to be a member of Warlock’s World…
But to join Kenny on Saturday, April 16th from 12 to 3 p.m. ET for Define Your Trade.
The techniques learned in Warlock’s World, whether from Kenny or myself or from SOLIDJELLO aren’t only a path to profitability, but can protect your account.
This enables you to continue to make good trades.
8-Baller, out.
Kenny “The Warlock” Glick
Comments
April 12 2022
Leave a Reply