Last time we looked at this chart it was in my January archives. In fact if you click on Jan 2007, it is the first one to pop up. This was a trade I took back at $80 and been playing it ever since.

Anyhow, I want to use this as a case study. If you decide to take this trade repeat after me...

"I am a lunatic for taking anything Jeff says seriously. US Steel is my trade, and I assume the responsibility of adopting my analysis and my trading rules to this idea. "

Oh yeah, don't forget..."I am an option addict."

The art of taking a trade...

Step 1: Identify the prospect.
This should be part of your daily task is to check your watchlist and or run searches to find stocks to trade. The selection process should look for the cream of the crop, and never settle for things that look "ok." Never settle.

I love the trend, I love the stock. I am moving to the next step.

Step 2: Timing
Timing will be a little different from one trader to the next. In an uptrending stock I like to identify that a strong trend is still in motion, and that I am as close to support (low risk entry) as I can get. I don't take a trade after a stock price has been crippled, I let the stock retrace and wait for it to stop going down (hopefully at support).

Check.

Step 3: Choose your weapon

Each trade will call for a different weapon. That is because there is a different expectation for every stock out there. To chose an option I try to answer the following...

"Where is the stock going?"

"How long will it take to get there?"

For an uptrending stock like this, I don't necessarily want to pick a target price. I want to ride the trend. *Now this is different for how I treat a price pattern trade. That will be case study two.

Since this is more of a trend trade, I want to make sure I am giving myself enough time to enjoy the trend. I would look to buy no less than July...and if you are thinking July I would try to upsell you to the Sept to be safe. After you bought I would then tell you that I own the July's.

Strike price is determined by my expectation of the stock. I trade OTM options on breakouts for the most part, or for any big expected movement in the underlying. Since I can't say I am expecting anything out of the ordinary here, I would take down the 110's. Sure it is an expensive option, but it is because it is an expensive stock. If you don't want to be so conservative, 105's are nice also. Technically they are in the money, but many would call this the at the money option. Problem with these...lots of time value, little intrinsic.

JULY 100's.

Step 4: Plan My Exit

This scenario looks simple. I will hold this until it violates my trendline. If it closes below my line tomorrow, next week, next month, etc. This is where I will exit this trade. Complicated?

Nope.

Step 5: Submit my order

The work is done. Now I just keep my emotions out of my decision making process and check this stock about an hour before the close each day to see if I should exit. This trade might make money, and it might not. The point is, it is a small amount of risk to back my analysis.

Again, US Steel looks like a low risk add point. I have been with this for a while and I added at the close today. This is not a new entry, but the purchase of these contracts is under the same analysis as if it were a totally new position.



Recommendation: If you choose, adopt this as your own idea.

Long: X

Short: Questions. Just kidding...I think I covered all my bases.