Pride International, Inc (PDE) is an offshore drilling contractor with operations that are conducted in oil and natural gas basins, including South America, the Gulf of Mexico, West Africa, the Mediterranean Sea, the Middle East and Asia Pacific.

The stock was spotted a bearish reversal candlestick formation on 29 Feb 08 before market opens and there was a negative divergence present in the stock chart. The analyst ratings were mostly from “Hold” to “Strong Buy” and making this reversal play contrary.

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PDE was trading at $35.44 and the low of the reversal candlestick was at $35.30 and the trading plan for PDE entry was set up using a conditional order.

If stock price < $35.20, buy Apr 08 $35.00 Puts @ Market

The order was triggered the same day @ $1.70 when the stock falls below the condition set. Having paid $1.70 all for the time value at almost ATM option with 50 days to expirations was quite a bargain, the time decay effect is not so damaging to this position.

A stop loss was then set if stock price is > $37.35, which is $0.10 above the high of the reversal candlestick.

The stock went zigzag for 5 trading days and I was out on the 6th day at $2.00 on the 7 March with a small profit of $0.30, 17.6% returns in 6 days. Always calculate you profit and losses in percentage and not by judging at the value.

pde.jpg

However on Monday, 10 Mar 08, there was another bearish signal, indicating a possible downtrend continuation as it did not rebound after a doji formation.

I quickly bought July 35 ITM Puts @ $3.30 as the stock price was trading at $34.60 in a down trend on an intraday chart. The stock rebounded and was trading range bounded for about 10 days with resistance at $36.00. I have set my stop at $ 36.50 stock price which was not triggered, suffer some losses and I stick to what I have planned earlier.

On 19 March, PDE was very bearish and the stock was down by $2.20 to close at $33.55 which extended to the next day with a gap but closed at about the same open price forming another doji, signaling me to get out.

After the Good Friday holiday which extended into the weekends, on Monday, 24 March which is yesterday, I quickly sell the options when the market opens @ $4.00. This round I begged $0.70 profits, 17.5% ROI which is about the same as the last round.

Always remember that trading options is a business and the ultimate motive of being in business is to make profits. Never be too greedy, this is not about making huge returns. Try buying a lottery instead.

“There is the dream of winning the lottery or investing in the results of a future event, such as gambling that the next roulette number will be yours” - Chuck Martin

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