"We’re buying $CSCO January 70 calls for approximately 23 cents. These options are priced as a long shot and we’ll be treating it as such. I’m fully prepared to lose 100% of my capital on this trade if $CSCO doesn’t make the move we need. So I’ll be sizing my position accordingly.
But if it goes our way, we should get plenty of opportunity to take our original risk off the table along the way. My best practice is to sell half of my position when the value of the options have doubled. And I will do that in this case. Then I’ll hold the rest, looking for the big move.
If $CSCO gets to our 74 price target, those 70 strike calls will be worth at least $4.00 — probably more, depending on when that price is reached. $4.00 per contract would be 20x what we originally paid. YAHTZEE!"
You guys know that I use Fibonacci levels to help us identify targets and manage risk.
And you've all seen it work, with your own eyes, for many years. I have too, of course, as one of the gang here calculating these levels every day.
But I've never quite understood WHY it works. How come these numbers keep showing up all over Nature. Why do the prices of stocks and other assets keep respecting these levels?
When I get asked, I don't have an answer.
But if there's anyone I'm going to ask, it's gonna be Bart. So that's what I did.
