Thursday Morning

Gator's Chart of the Day: ESRX

 Express Scripts Inc reported earnings on Nov. 5th and the market was not impressed.  That's what precipitated the big gap down on Tuesday.  Even with a solid hammer candle on Wednesday the stock is still well below the Bollinger band which should contain approximately 89% of all closing prices.  I took a position shortly after the open and a look at the 5 minute chart below will show why and how I built the position.

ESRX 5 Minute Chart

I was sure I wanted to give this trade a shot for several reasons.  The reaction to earnings was extreme and I thought it was overdone.  The volume was about 10 times average so I didn't think there would be much more dumping and I was anticipating some bottom feeders to snap it up.  I was watching the stock trade premarket and it looked like buyers were interested.

The Trade  
Based on the delta I had selected the Dec57.50 calls as my trading vehicle and had an order ready at the open.  It actually filled in the opening minute at .77 and I could have done better as the spread was still a bit wide but it was a small bite.  I prepared a second order as I wanted to be ready for a quick move.  The second order was twice as large as the first and it filled at 9:32 for .54 and I readied a third order (same size as the second one) in case the stock continued to move quickly in my favor.  It did and the third order filled at 9:43 for .67 and my position was full and the trading day was not yet 15 minutes old. 

I considered oversizing the position as it continued to move up after lunch but with the market looking treacherous I decided to hold what I had.  Into the close the calls were trading at .92 and my average cost (with all commissions) was .64 making the trade a 43% winner so far.  Since the stock was closing well I decided to hold all of the calls overnight.  I'll look to oversize the position on continued strength.