Occasionally, you come across setups where your risk is 10 cents and your reward can be multiple points.  I usually find these trades no more than three times per month.  These are trades that I cannot accept missing when they occur.  I found such a trade yesterday afternoon.

AAPL had been trending up strongly.  It appeared to be heading to 93 dollars.  But whenever the bid would go higher than 92.80 it would never hold.  Offers would quickly lift in the 92.80s but as soon as the bids above 92.80 were hit they would retreat.  One time I actually made the mistake of paying 92.88 for AAPL when the bid stepped up aggressively to 92.85.  Within seconds the offer was at 92.80.  This pattern repeated itself numerous times.

I decided to short AAPL as close to 92.80 as possible.  My trading plan was to cover 50% of my position if the bid held at 92.80 or higher.  I would cover the other 50% if the 93 offer ever lifted.  I was able to short 800 shares at 92.88.  I covered most of the position within 40 cents.  On its next down leg I got flat around 92.  During the final ten minutes it got pounded down another point to 91.

So now let’s talk about the easy trade.  AAPL closed so weakly I didn’t expect it to trade up to the 92.80s today.  But I set a price alert for 92.85 in the hopes that the seller would still be there.  I shared the trade on the SMB AM Ideas Sheet.  As soon as my alert was triggered about one hour after the Open I got short 400 shares.  Once I recognized the same pattern as yesterday I shorted another 400 shares.

As you can see from the chart below the trade worked out fairly well.  It never traded higher than 92.92 and pretty quickly dropped to around 92.  It took several more hours for it to trade down to the prior day’s low of 89.30.  On our desk we look to risk one unit to make five.  Today,  AAPL provided a risk/reward ratio about 10 times that amount.  If only we could find these setups every day…