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Trade Details: Bought to open 3 Nov 25th Twilio Ord Shs Class A (NYSE:TWLO) 34 calls for $1.60, $486.57 total cost (33.3% of account), 11 days to go. The trade executed at 14:10:51 when the stock was approximately $34.03.
Potential: Unlimited, but I will be watching two things to exit this trade: 1) a "mark" (the bid/ask midpoint) of $1.25 to exit the trade at a loss or 2) a MACD line/signal cross on the 2-hour chart signaling trouble ahead for daily chart technicals.
Thesis: Twilio lost its momentum after a fantastic post-IPO run. The daily chart is setting up well for another push higher (see below).
TWLO daily chart showing an orderly sell off and the MACD signaling higher prices.
I like this trade for several reasons:
- The QQQ has moved back to a position of relative outperformance vs the major averages - while the MACD line crossed the signal line last Friday, I think the post-election "tech wreck" held down TWLO
- Option volume is coming in heavily for TWLO calls
- The daily and 2-hour charts are in alignment technically, specifically the MACD is diverging and just crossed the zero line on the 2-hour chart
- With resumed momentum, the stock has plenty of room to run with the 52-week high at 100% higher from here
- In addition to the MACD indicator, the slow stocastic %D line is moving higher off the zero line, momentum is crossing into positive territory and the RSI is bouncing back from oversold levels
- Cloud plays remain en vogue and takeout rumors only add fuel
I was timing this entry using the 15-minute chart, but an eye doctor visit made me late to enter. Hopefully that won't lead to an untimely stop loss. I chose to use next week's at-the-money options as I am looking to capture several days of movement on the daily chart.