Happy New Years

There goes another year! I want to wish every one a safe and happy New years!

Vega

Like most people that have had on long Vega trades during this volatility crush, got whacked. I did really well with my double diagonal, but my calendar that I still have on is looking pretty beat. I adjusted it and all the $RUT did was move higher, with volatility moving lower. Today is my line in the sand; if we get a few more points of “pressure” on my spread I will be tempted to peel it off.

The $VIX did it, it traded into the teens, and this is giving individuals the confidence to allocate more of their hard earned money into the equity market. But I think that IV and the $VIX has bottomed out for now. I think the $VIX could pop to 22 with no problem, and fall back into the teens. I read yesterday that Goldman Sachs as 6 trade ideas for 2010 and the #1 trade was short volatility. Now for most short volatility is a complicated concept, but if Goldman thinks volatility is going to get even lower long equity is going to be a great trade. Even long premium would make sense to me.

Have a happy holiday everyone

Iron Condor

I set something similar to this trade below today.

Slow Week

Its Christmas week and volumes are low and the action yesterday was fast in the first hour then slowed down. I really don’t expect the volume to be explosive or price action to move too much.

Yesterday the $SPX momentarily broke the top of the range I’ve been talking about. It looks like we closed on resistance or just slightly above it. All that means to me is that we have a higher probability of pulling back. Also the $VIX is extremely low considering where it’s been, now my thoughts were for a $VIX in the teens by the year end. That could still happen, but when we get down here setting long Vega trades just seems right.

Yesterday I cleaned up some of the positions in my portfolio, including my double diagonal and iron condor. I also am setting credits and debits on the $RUT, $SPX and $NDX. As of now I have not set any short call credits, I think I will be able to get more premium out of the calls later in to this cycle.

Spread Update

With today’s pullback I was able to close out my $SPX butterfly for +13.86%. I would normally wait to close a butterfly out, but with low liquidity I pulled the trigger a little earlier then I normally would have. I still have my double diagonal on, and my calendar on, which have not been performing as well as they normally do, because of the long Vega portion of the spread. Since today vol is popping a bit, it’s really helping out my double diagonal and calendar. I will be patient and continue to manage my risk with those spreads.

Thoughts

Yesterday the S&P 500 had its highest close of the year. As the indices edge higher, so does the dollar. I believe that this correlation is starting to break down. The dollar has been moving higher off the November bottom 74.21 now trading at 77.35, that a 4.43% rise in the dollar. I think the dollar has some more room to run, but could come up to some over head resistance at 77.74, and it might have a slight pull back at that number, but I believe it will cut right through.

The S&P 500 $SPX has been a great vehicle to trade delta neutral this month, the range has been tight and IV is falling off a cliff. I still think that the S&P year end will be 1120-1125, and the $VIX could have a chance of trading in the teens. Technically the chart is not doing much, not much to report on, except the sideways action.

Income trades are working very well in this tight range market, I plan on closing some of them today. This was also the first month ever where I traded $MNX the mini Nasdaq in a double diagonal, and I will continue to trade the $MNX. Now, I have been trading the $NDX, and you can get in trouble very quickly and have more money in a trade because of the 25 point wide strikes. It’s cheaper to trade the $MNX and the chart and components are the same as the $NDX.

BTU Trading Idea

As I was scanning through some charts today, I came across Peabody Energy BTU. I have had this stock on my watch list for a while, and I really like how the chart is setting up. Below is a positive Delta trade idea.

Pavarotti Trading Music

Calendar

Today I added a long Vega calendar position to diversify my Greeks a bit.

Hang-Ten

Bring the Pain...

On Friday the big market concern is over the steep rise in the dollar and the rise in the equity market. The reasoning behind the rise in the dollar is due to the better then expected unemployment number. For most people this is not a good correlation, especially for commodities prices. Companies that consume industrial metals or energy to run their business are going to be effected. I think that even the precious metals will get hit the hardest because of the opposite effect a strong dollar will do. But also because I think that most of the precious metals are extremely over bought, and when people start looking for the exit we will get fast covering and locking in profits.

Below is a chart of the dollar index, and of lately we have broken out of the wedge pattern that we have been in for quite some time. We are also approaching and resting on the resistance side of the 50 day moving average. If we break the 50 day moving average and close above, we could see a counter trend rally back in to the 80's. If you take a look at the volume on Friday, you can see all the short covering that went on. I feel like the bears capitulated on the biggest volume I've seen on the $DX. We could be in for a bumpy ride as this carry trade starts to unwind.

Now if we do have a counter trend rally equity and commodity markets are going to be heavily effected in a negative way. I will be getting long Vega on any opportunity, and I will continue to manage my risk with my other positions.

OK One More...

I have one more trade to share with the blog before its too late.

Double Diagonal, $MNX

Another One...

I went ahead and set that iron butterfly I was talking about a few post back.

Iron Butterfly, $SPX

New Trade

New trade that I set today.

Iron Condor, $RUT

Thoughts

The last three candles on the $NDX including today are starting to look like this index could be losing a little steam. I don't see the Nasdaq dropping below 1750 any time soon, more of a channel forming. Same with the $SPX and $RUT, a channel is forming on all of them which make me think that we will not see much action the rest of the year, and I'm OK with that! I still think that we could get a Christmas rally, but no signs of that yet. The reason for this post is to highlight some key charts besides the indices I like, and these all could be short put ideas for Jan.

CME is continuing to look good for a cash secured put.
AAPL today came down and is testing an uptrend line, with this test I think a short put would work out good.

Iron Butterfly

Heres an idea for an income trade for Jan, its an iron butterfly. I would want to get out in about 17 to 20 days. I will probably be setting something like tomorrow or Monday. I feel like Monday would be better to set this trade, because it would be more consistent with my trading plan. Being consistent is a very important thing to me, so Monday will most likely be the day, but if not I'll post the trade when I set it.

Goldman and Guns

Here We Go

Income trades for Jan should start to go on today or tomorrow. Right now the normal spreads that I trade are out of whack right now. Calendars are traded in my portfolio and in one of the accounts that I manage. Since July the skew on $RUT put calendars as been between -.5 to -.9 which is manageable, but skews now are more like -1.77. With such a negative skew, its not worth trading in my opinion. I would rather wait a few days to see what volatility does, and then I will make my decision. Iron butterflies will be put on today or tomorrow. The reason I would wait till tomorrow is because of the big employment number. I would want to see what that number is and to make sure its not disastrous. But more then likely I will place my trade today, and I will post any new position as soon as I can.