A potentially 1:12 risk/reward trade

Last week, I briefly mentioned a trade that I made that has a potential to risk $1 to win up to $12. So what is this all about? Well, it is purely a speculation based on the technical setup but I believe the substantially greater reward potential over the limited risk is worth the try. The stock I'm talking about is CBOE, a well known company in Wall Street that provides marketplaces for trading options on various market indexes; futures on the VIX Index and other products; options on the stocks of individual corporations comprising equity options; and options on other exchange-traded products that include ETP options, such as exchange-traded funds and exchange-traded notes.

So here is the chart of CBOE. As you can see, it recently broke out its resistance around $58 (red line) and since then has tried twice to test this line, now its support (the 2 yellow arrows). Usually it will hold and if so, how high will it go? Technically its next height will usually mirror how much it recovered from its recent low, which was about $12 from roughly $46 to $58. In other words, we can expect CBOE may go up to around $70 as its next uptrend. Interestingly, CBOE has very recently just finished this course as shown in the left side of the chart. Can you follow the pattern? Now adding the positive news for CBOE from the job reports on Friday with the expectation of increasing interests soon, CBOE may very well follow the same path and materialize the pattern again. I'm happy that I have made the trade. So how do I calculate the risk/reward ratio? As you know, for any speculative trading, you first have to define what is your exit strategy. For me, if CBOE cannot hold at its support around $58 and drops to $57, I will be out. Since it was right at around $58 when I made the trade, I will risk about $1 for trying to gain about $12, a 1:12 risk/reward ratio. Right now as I'm writing, CBOE has gone up a bit close to $60. So the risk reward ratio is not so excellent but still fairly good at 1:5. I still like the odds!