MM39 - Babe Ruth Follow Up

I promised you I would come back and make a follow up if something changed on the Babe Ruth trade. So here I am. This is not financial advice, but it is a real important lesson on how to handle short term options that win quickly.

Let me take you back to the chart. This was a Tesla setup I had been watching closely. We broke out of a consolidation zone, fell back to the 200 moving average, and then pulled back to retest that level in what I call a kiss back. You see this coupled with a neutral mean reversion reading on my four hour IADSS chart. I love these setups.

This pattern happens when the market has been consolidating, whether in a downward channel, an upward channel, or moving sideways. The stock finally breaks out, then comes back to retest old resistance, which becomes new support. It is like a slingshot. If you watched MM33 on TSLA short term trading, this is the same type of thinking. You stalk the setup, you wait for the chart to tell you when to go, and then you execute.

I said if this level held, Tesla was going to run to its next natural major resistance. We broke through $405 and my target was $450 by June. I had a time target and a price target. We got there much quicker than expected. So now the question becomes, what do you do when a short term trade hits your target early and you are wildly profitable?

My first choice in this scenario is the vertical roll. If you remember from MM8 and MM11 where I covered rolling mechanics, the concept is the same. You are closing your current position and opening a new one at a higher strike to let the trade keep running while locking in profits along the way.