If you want to catch a falling knife, when is the right time to catch it so that you are not badly hurted? Can technical be used to catch a falling price, and profit from the rebound which will come for sure after the sharp fall of $40 per night?
Yes. Daily chart is not much of help in catching the bottom of the fall, but 15min chart proves to be useful.
Towards the bottom, 3 signals appear :
(1) Break downtrend line for 15min chart
(2) MACD cross up again at -30, extreme negative value
(3) strong support at 680, with 2 high lower tail supports, and a tweezer bottom.
At that price, option is not at its lowest ($8.10), but at least around a cheap price range of $9-$10.
The option has fallen hard, which original price was $33 when opened. And its only 6 more days left to expire ($710 Nov07 call).
If you have caught the rebound successfully, then thats your prize :
Buy @ $10
Sell @ $13.50
Profit = $3.50
duration = 1hr 45mins (from 1.30am to 3.15am).
daily
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15min
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