Sometimes the easiest plays are right in front of you. If you keep up with the leading stocks in the leading sectors and look for the several opportunities to play them during a run you can get in early as well as get in again and again because a strong stock in a strong sector on a strong run will make many quality moves to buy into. Thus we often will play the same stock over and over and over again as it makes its run, buying in early and then adding and taking gain all the way up. DRYS is a stock that made us huge money in 2007, and after a solid base in 2008 it set up to make us some more. We played if off the April bottom for a nice surge. When it started to test that surge we waited to see how it set up, picked our buy point, and then waited for it to break higher for us.
We put it on the report on 4-26-08 as it tested a strong move up through the 200 day SMA that week. It broke higher to start the week on some rising trade so we moved into the play with some stock positions at $86.45 and some September $85 strike call options at $14.80; somewhat pricey, but with the pattern we saw and DRYS' ability to rip off big runs, we wanted to leverage our money for gains more than just with stock.
It wasn't instant gratification with DRYS as it tested the 10 day EMA on very light trade the next three sessions, showing a nice tight doji on the candlestick chart that third day. That indicated it was ready and sure enough the next session DRYS gapped up, closing higher by 6.65 points. It was steaming ahead. It added 3 points over the next two sessions, tested for a couple of sessions, easily holding the 10 day EMA, and then broke higher again, rallying for the next 5 sessions, moving up almost 19 points.
The last session was a gap higher that could not go anywhere. That put us on alert that this particular leg of the run might be over. The next session DRYS gapped modestly higher once more, ran a bit higher, but then started to reverse ground on strong volume. With those gaps and the run higher it was exhausted. We always watch for this after a strong run as it is a tell tail sign. When it reversed we knew it was time to bank the gain. We sold the stock for $109.65, a solid 26.8% gain. We sold the options for $31, taking in $16.20 per option ($1620/contract) or a 109% gain. Sweet.
That gap and reversal on volume proved to indeed be the end of the run. We watched it fall to the 10 day EMA and wanted to play it again, but it struggled further, falling on high volume into Friday. We will see if it holds the February peak, the 'hump' in its double bottom pattern and rallies on strong volume from there. If so, we can look at moving in once more.
$89.5 (05/25/08)
