Saturday, November 27, 2010

Weekend thoughts

One should keep a careful tab on with the situation going on with the European debt situation. At this stage, I get the feeling that it has the potential to really spook the markets just like Greece. If the governments make good on their statements to make bond holders take a hit for any restructuring then watch out. It's the implicit assertion that bond holders will not lose out in any bail out that has been holding up the credit markets. Once this changes then you will start seeing money fleeing the PIIGS and that could get ugly. If the recent tape action wasn't so wild and volatile then I would say that the chances of this happening would be slim but this hasn't been the case. There is certainly a degree of risk aversion out there and this has the potential to blow out.

Wednesday, November 24, 2010

Interesting divergence

An interesting divergence occurred in yesterday's session. Whilst breadth and A/D lines were very weak, cumulative ticks fluctuated up and down to only finish marginally weaker at -10,000. This to me would indicate that not all the sentiment is bearish as buyers are still hitting their fair share of offers as opposed to seller's hitting the bids. Seasonalities are very bullish today and for Friday so don't be surprised if we get some kind of pop here.

I couldn't help but sell some volatility yesterday in the form of a OEX Dec Put BWB. Strikes are 525/520/510 for a $0.60 credit. Only did a half sized order in case this market really does fall apart.

We shall see how it goes.....

Tuesday, November 23, 2010

Risk off again!

Well all is quiet on the trade front for myself today other than a GOOG Dec Put BWB with strikes at 590/580/570 as mentioned last time. The trade is down around $40 at the moment.

Internals last night finished positive with cumulative ticks at +25,000. However as you can see from the futures today we are very close to gapping below yesterday's low on the ES of 1182.50. This will be an important level to watch as I'm sure there will be stops just below this so if it goes then expect a move back to the 1177 area. Should be interesting to see how the market reacts to all this negative news. All the quant studies and seasonalities would suggest bullish implications in the next few days but judging from the recent tape action, fundamental news are trumping all of these. I'm inclined to wait it out and see. (Actually I have a small day trade on the ES. Looking to fade the gap fill today and will be short at 1190 if we get there targeting 1185 with a 3.5 point stop.).

Thursday, November 18, 2010

Thursday thoughts

Risk off. Risk on. Risk taking appetite is back. I think the ES has a very good chance of retesting 1200 from here. Today looks to me like a gap and go situation. Because of the bullish sentiment I've decided to take off my OEX BWB right here. Just sold out 4 contracts for $0.55 debit and was going to hold the other 2 as lotto tickets but I have decided to take my money here and have put in a order to sell those two out as well as I don't think this fly will finish in the money. Internals are very strong so far off the open.

Wednesday, November 17, 2010

Wednesday morning update

Internals are improving after starting off weak, but the ES is still having trouble clearing resistance at 1180. I still expect us to take this out eventually (we are popping as I type this). Anyway I think there will be limited downside today in the small chance we do finish negative. We'll see what happens. Weakest sectors are homebuilders, and the financials. Strongest sector is gold, oil and semi conductors. I expect today to be an oversold bounce. I don't think the market is out of the woods by any stretch but we shall see.

Internals are still terrible.......

It is 11.30am ET and the internals still stink. It's probably going to be a nice trend day for the bears. Cumulative ticks are not showing any signs of bottoming yet..........

Just bought some OEX BWB's

Taking a bit of punt that we will bounce tomorrow or on Friday. Just bought a few OEX Put BWB's expiring this week. Strikes at 535/530/520. Averaged the trade in for even.

I also have a GOOG BWB for December expiration as well. Strikes at 5980/580/560. Got this one filled for yesterday. GOOG is holding right at the 23.6% fibbo level.

Tuesday, November 16, 2010

Tuesday morning heads up

Internals are extremely weak today. A/D lines are very bearish already and breadth and cumulative ticks are just heading straight down. Listening to trader's audio and we have lots of paper sellers. Looks like the risk aversion trade is in full flight. Interestingly the 30 year bond is still copping a hammering. Looks like everyone is getting out of the long end of the curve..........It's a given when you can front run the Fed on the shorter end which is what Ben and his cohorts are buying. At this point in time, I'm looking for a quick bounce off the fibbo but the selling might not be over with all the fundamental issues out there. Like they say whatever goes up fast comes down even faster. We have had one heck of a run up so taking the elevator on the way down is not a surprise.

Monday, November 15, 2010

Monday 15th November thoughts

I think we might see some more selling to come. Personally I think so long as there is no clear resolution on the European debt situation, the market is likely to be jittery. All the stats and studies being presented by the quants that I follow all point to a higher market in the intermediate term so I'm looking to get long at a well defined support level. The first one that pops to my mind is the 1180 level which corresponds to the recent area of congestion and is where the first fibbo level (23.6% retracement is located). I have a chart of this below.


I'm looking to use futures to take advantage of the situation firstly by drilling down to the shorter term time frame charts like the 15min and using the daily pivot levels as my entry points. I use the following pivot levels as price targets below. The first chart shows the regular floor trader pivots whilst the second shows the person pivot levels on a weekly and daily basis.



I've found that looking for longer term inflection points and then trading these levels on shorter term charts has been a pretty decent setup in the past. Just on Friday, I took at trade at trend line support on the ES at 1194.00 and held the trade over the weekend to close at 1200 for a 6 point winner.

Anyway so long as the European debt issue remains unresolved (and it will for some time - just think back to Greece where the ECB was forced to do something only after markets had been well and truly spooked.) It will be a good excuse for this market to take profits. I'd be building a list of strong stocks that are coming off the recent highs as good candidates to get long. Names such as AAPL, PCLN and other names come to mind. There's also the Chinese rates thing to contend with (another excuse??) so if you are long, then tread carefully as the recent selling are clear warning shots across the bow of the current uptrend. As always though I do expect the markets to eventually bounce back and move higher given the easy monetary conditions.

Earnings play wrap up Q3 2010

Hi folks. My apologies for the lack of posts and poor notice. I just got back from holidays over in Malaysia. Anyway here is the wrap up of my earnings plays for Q3.


AAPL
2 x 290/280/260 Put BWB opened for $0.12 credit and closed for a $0.29 credit. Total return was $0.41.
2 x 360/370/290 Call BWB opened for $0.15 credit and closed for a $0.02 credit. Total return was $0.17.
Total return for AAPL was $0.68 on $9.32 of risk which gives a ROI of 7.02%



GS
4 x 150/145/135 Put BWB opened for $0.05 credit and closed for a $0.16 credit. Total return $0.21 on $4.79 of risk gives ROI of 4.38%.



GOOG
2 x 510/500/480 Put BWB opened for $0.69 credit and closed for a $0.02 debit. Total return $0.67 on $9.31 risk gives ROI of 7.2%



ESI
4 x 60/55/45 Put BWB opened for $0.13 credit and closed for a $0.49 credit. Total return $0.62 on $4.38 of risk gives ROI of 14.2%



AMZN
6 x 150/145/135 Put BWB opened for $0.41 credit and closed for $0.03 debit. Total return of $0.38 on $4.59 of risk gives ROI of 8.3%



NFLX 
8 x 140/135/125 Put BWB opened for $0.62 credit and closed for $0.05 debit. Total return of $0.57 credit.
8 x 175/180/190 Call BWB opened for $0.23 credit.
Adjustment of 4 x 185/190 call vertical for $1.48 debit. (bought)
Adjustment of 4 x 185/190 call vertical for $1.64 debit. (bought)
Adjustment of 6 x 175/180 call vertical for $0.34 credit. (sold)
Adjustment of 2 x 175/180 call vertical for $0.51 credit. (sold)

Total loss of $302 on max risk of $3320 gives ROI of -9.1%.



BIDU
4 x 115/120/130 Call BWB opened for $0.16 credit.
Adjustment of 2 x 125/130 call vertical for $0.37 debit. (bought)
Adjustment of 1 x 125/130 call vertical for $0.55 debit.
Sold 3 x 115/120/125 call butterfly for $0.42 debit.
Sold 115/120/130 call BWB for $0.30 credit.

Total gain of $91 on max risk of $484 gives ROI of 4.7%.



PCLN
4 x 330/320/300 Put BWB opened for $0.55 credit.
Adjustment of 2 x 310/300 Put vertical for $0.48 debit.

Total gain of $124 on max risk of $3780 gives ROI of 3.28%.


Q3 EARNINGS PLAY SUMMARY

Total gain was $743 (not including commissions which was significant $198 and that's after I'm on a significant discount with TOS). Total return therefore was $545 and average ROI on the positive trades around 6.5% (although based on actual margin requirements, it would be only 3.25% due to current FINRA rules).

Closing remarks: The profitability versus the probability payoff seems to be right on the money here. Most of my long options were placed right at or just beyond the 1st deviation mark with my breakeven around the 2 std deviation mark (95%). Therefore I had a high probability of these trades working out for me (20:1 odds). Therefore you could say that the 6.5% ROI is about right given I had about 95% odds in my favour.

Is the effort worth the reward you might ask? Knowing that all it takes is one of these tickers to move way beyond the breakeven for all the good work to be undone. I don't know. I have the feeling that it is more hardwork than it is but in the context of the current options income trading conditions, finishing in the black on any income strategy from what I can gather is a pretty rare occurrence these days. Will I continue with this strategy into Q4? Probably given that I still some edge and there is always the off chance that I will be able to get more than a one strike separation from my long to short option and so extract greater value (hit a home run). I will probably mix it up a bit and use weekly options where I can (GOOG, GS and AAPL). Also I will not forget to add RIMM, MA and ISRG to the tickers above as these are the other ones I normally trade as well.