Trading ABC Patterns with Options
ABC Patterns are integral part of many other patterns like Double Tops, Double Bottoms and Head and Shoulders. When I see Inv. Head and Shoulder patterns and its breakouts I plot ABC Patterns and trade using Options. Here is an example of CVS (Caremark Corp.) Daily Chart. This chart shows a clear Inverse Head and Shoulder pattern. Plotting ABC Bullish Setup, it covers from Sept. 2010 to Dec. 2010, trading above EL Level. On Friday Dec. 3rd, it traded above the Neckline to signal a breakout. The distance from the Neckline to the Head is about $6, so the projection from the Breakout level is also $6, targeting around $38. I plotted CVS Feb. $35 Calls in the subgraph. This chart also shows a potential double bottom pattern confirming the validity of Inv. Head and Shoulders in the underlying stock chart. The Feb. 2011 CVS 35 call is trading at $0.50c. Expected target is around $1.10-$1.40.
Update on Dec. 27, 2010
The last post on Dec. 6th showing CVS ABC Pattern and its Feb. 35 Options. CVS is trading in ABC Bullish Pattern with a Long triggered at 30.70, targets: $35 (100%AB), $36-$38 (127%AB-162%AB) and stop at $29.40 (below C). On Dec. 6th Feb. 2011 $35 Call options were trading at 0.50c. On Dec. 22nd, CVS reached its 1st target of $35, and Feb. 35 Calls were traded at $1.40. The chart below shows CVS chart as of Dec. 23rd trading.
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