Small Hedge

Today is another crazy day and I decided to set the first preliminary hedge. Hopefully the only, but if not I'm ready to protect the portfolio. I like to set hedges that have positive theta, the trade below is on TWM proshare ultra short russell 2000.

Short Put Ideas

In 10 days or so cash secured puts are going to be at the forefront of the strategy calendar. Now I know that we still have 10 days, but with resent market action I expect a rise too and through 1100. And at such a pivotal market level I think that selling puts in tomorrows tape is a safe bet as long as you are okay buying stock at lower levels.

Apple today came down and tested the 20 day moving average, plus it tested an uptrend support at $191.00. Dec 165 puts for 1.25.

Goldman Sachs has a similar pattern, yesterday it tested its uptrend line with continuation higher today. Dec 155 puts for 1.70.
Conoco Phillips had a nice pullback the last few days with a great yield. Dec 48 puts for 1.00.

Market Outlook

Today is a very important day for the equity market. We need to close above 1055 on the $SPX to stay inside our up channel, and currently we are back in the channel. I would like to see this area hold with a continuation to the 20 day moving average currently at 1070. This would make be believe that what we had was just a buying opportunity and not the start of a double dip.

Keep your eye on the dollar as well, if we break to the upside out of the down channel that could cause some panic. My thoughts are that we go lower from here to make a new low.

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More evidence that the market could be making a reversal.

Is the pullback over?

This market has a lot of momentum to the down side right now, but that could be all over as of today. The struggle between the bulls and bears today is making this market hard to interpret, but this could be a reversal in the makings. The key setup would be if the market closed flat or slightly up, with a continuation higher tomorrow. This would make me believe control has changed hands from the bears to the bulls. If this scenario does not play out 1055 holds strong support on the S&P cash. The $VIX is also something that I am keeping my eye on, with a base of support now at 20 and a resistance point between 25-26.

Russell

Here is the bull and bear argument, the first chart is of the bulls and the second is of the bears. Enjoy!

Headed Out

After the market closes I'm headed out on an expedition through some of the back country here in Colorado. Have a great weekend everyone, see you Monday.

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Market Setups

The market is not setting up that well for the bulls. I see two different things that might make the bull run stop for a while.

The chart below is of the $SPX and there are two sell signals that could play out. The first is a candle pattern that is forming today, because the market closed up yesterday this pattern has a better chance of playing out. Todays price action opened in the direction of the trend, but this morning the market made an abrupt turnaround. This formation is called a bearish engulfing pattern, which indicates the bears have taken control of the session. I can almost guarantee that this formation is being noticed by many traders and most likely they are acting on the pattern. The second is based on yesterdays low, when we made that low buying started to pick up through out the day. Stops were probably placed below the market, highlighted in white is where I would assume stops are. If we break into that area we could see liquidation of equity that causes traders to either take a loss or protect profit. Which could push the market lower until investors feel comfortable getting long. Again stay on your toes until things become more clear on market direction. My key levels on the $SPX 1080 and on the $RUT 600.

Side Ways News Selling

Picking market direction is like the sign above, good luck! Since Oct 14th we have been in a very tight range with a high probability of breaking out in either direction. Earnings continue to come out better then expected, the beige book came off slightly bullish, existing home sales bullish and the most important thing is that the trend is up. But all of that stuff gives me doubt about going higher like we have been. Seems like funds, money managers and institutions are selling the news. Selling good news in market tape like this makes me feel like we have went to far to fast and current market price does not reflect true sentiment.

As long as the trend is still up I will trade to the up side. But I will be more cautious about my trades and positions, and I will keep my eye on any indication of a turning point in the market.

Filling the Gap

Yesterday I read an article about a small gap on the S&P. The article stated that before we go higher we must fill the gap. Now today the gap is being filled and we will see if any buying starts to hit the market once this gap is filled.

Monthly

Not much to say, I'm going to let the chart speak for if self.

S&P 1100

Dow 10k has busted above and we are trading higher, I expect the same with the S&P 1100. 1100 holds huge significants because of the so called "Lehman Gap" then crash of the global markets. A close above this level would be a big confidence booster for the bulls and a slap in the face for the bears. One concern that I have is that there is a lot of over head supply in the market above this level, some people are coming back to even and are giving up. That might make the profit taking start, but considering how well earnings have been, any weakness is being bought. The next area of importance is not until S&P 1200.

I did get filled on the butterfly trade I posted yesterday @ 14.00.

Bull Flag or Out of Steam Sally?

Is GLD topping out with anticipation of a pullback or is this just a continuation pattern? The characteristic of a flag are showing with volume, the steep quick price trend and the short time the flag has had to form. The problem with this set up is that its about 64% reliable that it will meet its price target. So I don't like to have too much exposure, but I do have a trade idea. Trading a spread is the easiest way to play the flag, because even if it doesn't move I still collect theta, and theta is a good thing! Plus if the dollar continues its path of weakness gold can only go higher. There is no type of adjustment on this spread, more spec then anything else.

Dollar Bottom?

Could the dollar be making a bottom? The indication of this happening is strengthening. But a cheap dollar has helped out the equity market by insuring better earnings for multinational companies. It has also helped out our commodity market by pushing up the cost of oil and gold. If there is any dollar bulls out there its more of a contrarians opinion then actual health of the greenback.

Bread and Butter

What you like some bread with that butter? Today I'm setting a $RUT butterfly for Nov, I'll keep you posted on adjustments, fill price and thoughts on this trade.

Trade Idea

Even if I think volatility is coming out doesn't mean I can't have a long vega trade on. Volatility diversification is what I like to call it. I have big exposure with short vega trades, so I decided to set some long vega trades.

Major support is at about $18.50, and it seems like we are headed to that level. When we get to that level I will reset a calendar or some thing else that is long vega. As of right now I looking for volatility to come out.

Volatility

Volatility is headed lower today again on expectations that earnings are going to be better then expected. With volatility continuing its course lower I made the decision to take off my calendar spread on the $RUT up +9.7%. Not bad for about a week and a half. So if volatility is going to continue lower I would like to get short some vega. Today I set some ITM debit spreads and OTM credit spreads, which are short vega. But I really want to get some exposure to the down trending volatility, and this brings me to a trade idea.

I also purchased 195 calls on Apple (AAPL) before the market closed today, and it seems like it will pay off tomorrow.

Doesn't Mean Anything To Me

Dow 10k, big deal right? Maybe it depends on how you look at it. Humans love round numbers, media and the press feed off of it, but for traders it doesn't mean anything. And if it was to mean something what would it be, more buying or time to take profits? Its the old chicken and egg scenario, which one comes first. Below on the chart you will see a red line indicating 10k, now the argument is that 10k could be a pivot point for the market. It could be, the thing is how are the traders and investors going to react to this level? My bet is on profit taking, then a slight pullback with continued upside till year end.

Trade Update

The Nov/Dec 610 put calendar I bought on the $RUT is still in very good shape. I was expecting more of a volatility pop, but instead its been kind of quit and sideways. New Nov. trades have already started to get filled. I have been setting credit spreads on the $SPX below $950 and on the $RUT below $520. Next week I will start setting debit spreads and cash secured puts.

Volatility

Today was a non event day with major indices advancing slightly, and the $VIX making and holding a very important level. Last week I bought a Nov/Dec put calendar based on my thoughts of higher volatility off these low levels.

New Trade

New trade on the $RUT a 610 put Nov/Dec calendar. I will keep you posted on any adjustments.

Right now I like where volatility is and we might get some stabilization or we will move higher in vol levels. If the $VIX breaks the 22 level or the skew starts to widen I will exit the trade no questions asked.

Long Term RUT Trade

First let me answer the term "long term" and what it means to me. Long term can mean many different things to many different traders. I like to think of long term as 3 months, and 3 months is a long time in my opinion in the option market. Most of my trades that I set are front month options, but I like to have some long term strategies working.

Below is the chart of the $RUT and we are getting very close to a resistance point around the 650 level. Now I have been hearing a lot about this Lehman Brothers gap, and all about the heavy supply above that level. I would not be surprised if we bounced around that level before we either break higher or have a 3-7% correction. Also the $VIX is getting to the lower end of the channel which might signal a sell signal, unless we just bounce around like we have in the past, just keep your eye on a $VIX above $25.

Based on seasonality bullishness I like this ITM debit spread on the $RUT. At 90% probability of profit and very low management style, its a prefect candidate for my "long term" strategies. I also like credit spreads below 500 for Nov, and I currently have a calendar spread on the $RUT and I will be sharing more about that in a later post.

Swing High?

Could today be a good day to take a short position? It might be and it would also be very low risk. I don't recommend loading up the boat, I don't even recommend getting short. What I do think is if there is a slight pullback that would create a great opportunity to add to longs. If you do take a short have a tight stop above yesterdays high.

Gold $1100?

I don't think gold $1100 will be an easy thing to accomplish, and with everyone talking about it will be that much harder. Its hard to believe that gold will push higher based on momentum when price is becoming parabolic. I not going to play gold until we pullback, the area I'm looking at is just below $1000 an ounce about $990. Some people might believe we will not see a pullback in gold any time soon, but today the dollar is strong and will continue to get stronger this week. Until I see something too juicy to pass up I will not post any trade ideas on GLD.

As for the equity market we are starting to build a sideways to lower channel which will be good for delta neutral traders. The range I will be watching is $1080 to $1020, and below is a trade idea I have for the SPX. One thing about this trade is that you are short vega and if volatility levels continue to slip you maybe able to take profits faster then planed. I am going to set this trade off set and slightly bullish. The trend is still higher and I'm giving my position an edge.

Market V or W

This week is the start of earnings season with Alcoa reporting on Wednesday. There are a lot of bears out there right now thinking that Q3 earnings are going to miss expectations, but I see it a different way. For almost the entire third quarter the dollar was weak which will help top line revenue. Also the bar is still set very low, I think that this is going to be an okay earning season. I can guarantee one thing; that we will see big up days and we will see big down days in the coming two weeks.

I have also been hearing that the rally is over and that we are about to double dip and the "V" is now a "W". I have a very mixed opinion on this idea, first bonds are rallying which suggest that money is shifting from equity to fixed income. Bond yields are getting less and less attractive which might keep money on the side lines. But I think the dollar will continue to get weak over the next couple months, which will help most multinational companies. Also the seasonality of the market over the next few months is bullish. The sentiment is also very mixed right now. But the most important thing is that the trend is still up and that is the way I will trade till it is clear that the trend has changed.

Update

The $VIX is showing signs of reversing later today or tomorrow. We are touching the top of the channel and now my expectation is for a 50% retracement of this last move lower. Also I keep hearing on CNBC, Fox Business and Bloomberg that everyone was expecting a pullback and the people that were expecting the pullback are calling for a 5% correction. As of right now from the high we are off by 5.6% so is this it? Probably, but I would not be surprised to see another 5% down. 1000 on the S&P would be a great place for fund managers alike to pick up shares, so another 5% would not be that bad.

9.8%

Today is going to be another bad day for the bulls, with the unemployment numbers coming out at 263k 9.8%. The estimates in my opinion were aggressive with a consensus number of 170k. So what do we do now if your sitting on long stock or short put spreads or any other bullish position? There are a few things that I like to look at before I make a decision and I will review and play out both scenarios before I exit my position for a loss or set a hedge to protect my trade.

The first thing that I look at is support levels, if the levels are above or below my position makes a big difference of how I will manage my positions. I also watch the $VIX to indicate if levels are at a buy or sell signal. Right now on the $VIX I'm watching the 29-30 handle to indicate a buy signal and currently we are at 28.27 pre-open after the job numbers. With the job numbers priced in to volatility we might be able to see the $VIX hit that level today.

Currently in my portfolio I have a lot of short put spreads on the $RUT and $SPX. Has you can tell my positions have been getting hit this month. I have not exited any position at this time. To be honest I would like to hold fast today and wait to see what happens next week. My expectations for today are bleak and this is when a trader in my position will show there true colors. But I have been through things like this before and I have learned to be calm and patient on days like this.

George bush bloopers

Greenspan

Momentum

I feel like the momentum to the up side might be dead for right now, but as a trader I need to have a plan in case I need to hedge or exit my positions. The plan right now is to short some Russell 2000 index futures if the S&P closes below 1040. 1040 on the S&P has been a spot that I have been watching, and a break of that level would put the next support area at 1020-1025. Also we have the big unemployment number tomorrow and the weekend is here again (how these weeks fly).