Trade Recap VHC 5/27/2011

VHC was in play due to a broker upgrade premarket:

VirnetX Holding Corp (NYSE:VHC): Initiating with Outperform; See significant Upside - Cowen

http://notablecalls.blogspot.com/2011/05/virnetx-holding-corp-nysevhc-initiating.html

Premarket showed that 24.60 was a level that VHC failed to break through.

• Bias is to long over 24.60 with a good r/r entry.
• Upside potential is around 25.5 then 26 based on 30min chart and descending trendline on daily chart.

a - opening drive

• Looking for an opening drive with stop under 60c. Got long at 70c with stop below 60c. The target on this trade is 25.50 for a r/r of 5:1 or 6:1. I expected slippage on this volatile stock. I was stopped out 10min later for a loss of 17c.
• I saw 25 has become a big level and I need to try again if it takes out that level.
• Thoughts: I would take this trade again, but not sure in this kind of volatile stock. Could be better to wait for 10-15min to let them settle down and spreads to tighten.

b/c - base and break

• VHC regained 60c, 5EMA has caught up and supporting the stock, long 1 tier over vwap at 24.87 with intention to add over 25, worst case stop is below 47c. Target is 25.5 to 26 with r/r of 2:1 or 3:1 (not great).
• A few minutes later, VHC took out 25 with volume, I added at 25.05 with stop under 89c. Target is still 25.5-26 with r/r of 3:1 to 6:1.
• After the breakout, I moved the stop on my first tier to 89c, so around breakeven.
• Stock ran up nicely to 25.5 and couldn't get through. I saw buyers coming in at 25-30c. I was looking for the 9EMA to catch up. If it close under the 9EMA, I would just hit out of the stock.
• Around 10:55, 9EMA caught up and pushed the stock over 25.50, but I saw the volume has been slowing. That's my first warning sign.
• Stock struggled at 25.90, then it lifted to 94c and immediately came back down.
• This is very close to my target and I sold half my shares at 90c for a gain of $1.03.
• Moved my stop on rest to under 50c.
• Then the stock did a bear flag and dropped 50c HARD. I was then stopped out with a huge slippage at 25.25 for a gain of 20c. Was not happy with that slippage.
• Total gain of $1.23 with about 50c risk taken.
• Thought #1: I would take this trade again, but be more aggressive in selling into my targets. When my final target of 26 is 10c away and my risk at that point is under 25.50 (40c risk) and in a very volatile crappy stock like VHC. I need to take it out and call it a nice trade.
• Thought #2: I could sell into 50c and get back in when 50c lifts, but I dont like the chances of 3 push attempts. I could also buy more at the consolidation under 50c, and hit out under 25c. This probably should only be done on better acting stocks that wont see massive slippage.
• Thought #3: the momo add over 25 is an A trade, I needed more size, so I can take a 3R gain at 50c.

Lots I can improve, more size so I can be less greedy and take profits at 50c and 90c. With current size, taking profit at 50c is not really worth the effort despite being the right thing to do. When my reward is 5:1 with a good probability setup, I need to take more size to sell into pops.

- Chris