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16
Nov
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2:05pm
Woo: There was also a small flare down to about 111 on the SPY that hasn’t played out on the 5minute chart. So that short position that Idan is talking about may be a good idea. Looking at a minimum 7 points or so drop here. Could also see a potential drop to 1098 for a trend line and fib projection hit.
1:50pm
Idan: I am looking for another potential move up here to go short… the Dow Jones has hit it’s 50% retracement of the bear market, and I believe if i can go short at 112-113 on the SPY i’ll be rewarded with another 5-20% move to the downside.
——————————-
Original post by Woo:
So the market is back north of a the November monthly trend line, and futures are up a good amount. I’m still leaning towards this going up into new highs as I’ve been saying for a while now.
Here’s the SPX 1 month:
The futures move puts us above the 50ma and 200ma on the 5 minute monthly chart. it also has the 50ma crossing north of the 200ma, which is pretty bullish. We also cross north of the 61.8% retrace of the drop. We’ll have to see how the market opens though. There’s a chance we could retest that line, or consolidate more, but there’s also a chance we could skyrocket north into new highs. The trend lines north of here are WAY up there, and we’re running out of fib forecasts towards the 1122 area on the 5 minute 1 month. Same with the 6 month log chart.
6 month 60 minutes SPX:
This market won’t give in so easily, so don’t be surprised if you get a drop. However, I would buy drops, and sell rises, as opposed to vice versa, till that 1120s area hits on the 1 minute chart. From there I would start taking strong put/short positions.
So I may not be posting as actively in the intraday for some time, depending on how things pan through. Perhaps this is too much personal information for a stock site, but since I have interacted regularly with many of you for a couple months (maybe even over a year for some), I thought I would update a bit. I was very recently approved for a loan towards a condo, and escrow will be closing very soon (maybe even this week). I am pulling out all my stock earnings to pay for the down payment towards the condo (so that I don’t have ridiculous mortgage payments). I’ll also be getting married in March. So I won’t have any money in the market till possibly February of 2010. This means that even though I want to take the opportunity to make tons of profit on the drop down, the condo and wedding and honeymoon costs come first. So since I won’t have any personal money in the market, there is less incentive for me to wake up at 6:00 AM PST when my work starts at 9:30 AM PST. I’ll still post updates, and try to update during the intraday (so that at least others can make money), but it will definitely be less. This is not goodbye, and I have too much pride to try and not figure out market action short and long term, even if I don’t gain anything from it. Wishing everyone the best. I will still make sure to post the intraday everyday till Idan is back from his business trip, and after that, I’ll at least try and have a weekend update for everybody outside of the intraday comments I’ll try and post while at work. Good luck to all! – Woo
back. What’s hanging us up here? Draw a line on the SPY connecting the all time intraday highs from oct 2007 to May 2008 swing intraday high. Ding ding ding right on the money. We actually peaked our heads above it for a few minutes. A close above 111.55 is above this line and very bullish. I doubt we make it on the first try. We should probably move down from here tomorrow and test the lower 110’s support area.
November 16th, 2009 at 2:03 pm
thus if I were day trading this I would take a short with a stop at 111.65, or better yet, watch the candle sticks and only cover at a confirmed break of the trendline.
November 16th, 2009 at 2:05 pm
of course as I type this it starts thrusting higher. lol
Anyone going short here? If so are you using nov spy puts…
November 16th, 2009 at 2:16 pm
No but I might take profits on some longs. I can’t see us closing higher than these levels today.
November 16th, 2009 at 2:28 pm
In on spywf @ .44 (spy 110 nov puts)
November 16th, 2009 at 2:29 pm
Tight tight stop
November 16th, 2009 at 3:17 pm
Moving stop up to lock in profit. May set as a trailing stop if market continues to fall
CLF got 44.5 cross
wow look at the dollar tankage
November 16th, 2009 at 2:35 pm
“wow look at the dollar tankage”
Yes, but we are still far away from the low of march 2008 (70.70)
November 16th, 2009 at 2:43 pm
yeah, just a nice orderly fall should get us there in a coupla months or so.
Stopped out of SRS and bought SH @52.89. GL.
I am taking my first short position right here. I am buying 1000 TZA at 11.28.
November 16th, 2009 at 2:24 pm
I’m joining you on that.. 1000 at 11.25
November 16th, 2009 at 2:34 pm
I put in a trailing stop buy for TZA and a trailing stop sell for MWJ, if we selloff into the close, both of these orders are likely to fire. The MWJ is a large position, the TZA is very very small and I wont be holding for long I don’t think.
November 16th, 2009 at 2:35 pm
JROD, RUT lagged SP500, and it has room to 624. But you bet Tuesday it will down after big move today?
November 16th, 2009 at 3:26 pm
JROD, good call, TZA is up. How did you predict to that? normally, at the end of the first Monday of opex, it has a sell off close to the end of the day?
November 16th, 2009 at 2:58 pm
hitting trend line again.
needs to break south of this for bears.
November 16th, 2009 at 4:14 pm
Woo, can you tell me which chart (5 min, 30 min e.g.) you normally use to build trend line for day trade and for swing trade?
November 16th, 2009 at 8:37 pm
JROD – what is your tgt on this – can you share what you are seeing ?
Almost near our tgt of 42.3 for AXP ….
November 16th, 2009 at 3:12 pm
MWJ sell order filled. Now for the TZA order… here boy, come on now.
November 16th, 2009 at 3:12 pm
and filled. Lets go down a bit tomorrow so I can close this thing out quickly.
November 16th, 2009 at 3:16 pm
I am holding 5k of TZA avg at 11.20
November 16th, 2009 at 3:19 pm
I am holding a laughable amount at 11.40. What’s the price target, folks?
November 16th, 2009 at 3:25 pm
stp out of TZA at 11.45
—- WOW —- im going to go mental.
1. stopped out of SRS
2. additional fill on SPY 110 NOV PUTS
3. im in the good on my SPY PUTS at this time.
everything else im holding. added to PBI puts.
see if we get a final hour sell off.
November 16th, 2009 at 3:17 pm
my additional SPY puts got filled at $0.46 just before the hour. im far from stressed LOL …. feel like my city is falling to pieces while the market tells us everything is going to be AOK in the near future.
November 16th, 2009 at 3:31 pm
What city u in richie?
Thunked u wuz canadian from the only city in canada, Toronto?
I know in football the toronto roughriders won against the vancouver roughriders
while the St.John roughriders watched ?
November 16th, 2009 at 3:34 pm
Vernon BC …. forestry and tourism
taking some ure off. waiting for entry on sco at 12.65–may not happen. if it does, will put stops at 12.35.
why would you think we will be up or down tomorrow?
November 16th, 2009 at 3:27 pm
“Dollar falls to new 15-month low after Bernanke”
that’s why this dk came out to speak..!
Bought 15K SRS @8.41
” 10K FAZ @18.64
Love of my life, Meri-death Whitney just about to say she is the most bearish on market
since Mar09 and market setting up for catastrophic fall.
Her newsletter says she sees a 35% decline dead ahead. She recommends short
banks.
I would laugh it off were it anyone less buxom.
November 16th, 2009 at 3:26 pm
She is awesome!
November 16th, 2009 at 3:27 pm
I love big breasts sooooo much. . . . . i decided to grow my own.
I used to be built like a greek god, now i am built like a godam greek. . . .
November 16th, 2009 at 3:43 pm
LMAO…Good one
November 16th, 2009 at 3:32 pm
good luck with FAZ… banks are making profit left/right with 0% APR! they got more room to go higher but i hope AXP drops soon… i am big time under casue of this SOB
November 16th, 2009 at 3:42 pm
Meredith Whitney: I Haven’t Been This Bearish in a Year; Look for Double-Dip Recession Next Year
November 16th, 2009 at 3:58 pm
In her report she cites that the mark to market exclusion was the sole cause
for bank profits rally. Unless the gov’t does something that further skews the
picture they will start losing cash again.
Have made big money listening to her on the upside and downside, will stay
with her very valid opinions even tho short banks and reits goes against all
common sense i have.
FWIW trading is very counter intuitive and i just hope she is not 6 months early
on this call.
November 16th, 2009 at 4:19 pm
We can not totally trust her word. In her march interview, she said that banks would continue down. But the finance went up big.
November 16th, 2009 at 4:59 pm
Please provide a link to an interview where she has made a bad market call in the past year. I don’t believe one exists.
think we rally into close….shorted some SPY puts…for the final crunch, yummy
November 16th, 2009 at 3:30 pm
I didn’t know you short lol
November 16th, 2009 at 3:34 pm
Banks tanking. Bernanke said something about burying cash in his back
yard instead of using BoA?
New federal program to be announced: Cash for Bunkers.
—- SPY 110 NOV — im holding these until tomorrow morning. no matter what im selling them tomorrow. im not crazy enough to bet on them until end of week.
im liking what im seeing but im seeing something ive seen before and before im liking what im seeing too much i must see more of what im liking tomorrow mornin.
Idan and Woo where are you guys? stocktock seem very lonely without you guys updates
November 16th, 2009 at 3:40 pm
They have already explained why they are not posting much right now.
November 16th, 2009 at 3:53 pm
Morris,
My order for TZA got filled @11.15, debating whether or not to sell before EOD.
Are you holding FAZ overnight?
November 16th, 2009 at 4:57 pm
Sorry for the delayed response; meetings. Anyway, the answer is yes, I did hold FAZ and SCO overnight. I also held the DZZ but that is a longer term trade.
November 16th, 2009 at 5:42 pm
Thanks Morris. Same to you, my DZZ is a longer term play (to hedge against my long position in gold). Still holding TZA, SDS and SH overnight. Stops are set for TZA and SDS. SH is for longer term play, hope to ride it all the way down, wouldn’t sell it unless SPX blast past 1145. GLTU.
idan and woo are getting married
November 16th, 2009 at 3:51 pm
not cool.
November 16th, 2009 at 3:52 pm
cute
November 16th, 2009 at 3:54 pm
lol.
so SPY traced the flare i was talking about above in the original post. so that would’ve been a great scalp opportunity.
new flare to 111.25, but it’s late in the day and this can finish playing out AH. not sure if i’d be comfortable holding anything into tomorrow, especially if it’s a november option.
November 16th, 2009 at 7:57 pm
Bear sounds jealous.
He was hoping to fluff their pillows. . .
——- 1109.50 ——— this would be a very nice ambiguous closing price for SPX
interesting to see how Qs closing over the key trendline, a breakout!
watch out for a possible gap down. there’s a trend line and fib around 1101 or so…
market has room to run in either direction. it’s always hard to call the short term movement when you’re near a possible top.
i would have only played the short at 1113 to 1107 on SPY nov puts, and gotten out for the day.
erx needs to break 49.53 area for the next push, then i will be very bullish on erx.
November 16th, 2009 at 4:01 pm
closed below the 5 minute 50ma.
should be a fun opex week =P
November 16th, 2009 at 4:02 pm
took 1/2 of my SPY NOV PUTS off the table at the close. just to play safe
November 16th, 2009 at 4:08 pm
smart man. i’d really love to see an open at 1100 area tomorrow though, and then a large rise from there, but it’s so close to the top, we could go 10 points north and just call it a year haha.
now that we’re so close to my 1118 (60 minute) – 1122 (5 minute) top i have to start looking at other possibilities, and at the MAX top possible that is slightly above this.
November 16th, 2009 at 4:21 pm
woo, Do you see any possibility that we run to 1150 and then make a big reversal? Another question I have is that if you know any good indicator or report about overall supply and demand for each individual stock?
November 16th, 2009 at 4:24 pm
i don’t see the possibility of 1150 without a major retrace first, and i mean a major retrace of 666-1120s. i think 1150 is outside of the 1.6x of wave 1, which creates big problems for me. i’ll get the exact number soon, that we can’t go north of no matter what.
Big trend lines broke today. Sitting in the comforting safety of the slow mover C for now equities wise. I’m am positioned Short on the USD across 3 pairs. All of which are at key points (except the USD/JPY which broke threw key line today soundly and was my inspiration for going short the USD).
Got a break from work to post my thoughts here.
The three major index: missed another chance to setup the pre-condition for locking in a sell signal tomorrow, must wait until Wednesday’s close for the signal. As far as the MAs are concerned, they’re all aligned, just waiting for a negative divergence on the DPO.
I am pleased that my AXP Nov 40 calls got sold at $2 today (when AXP ripped higher to $41.98, I’ve said it had a good chance of ripping higher) and picked up AXP Dec 41 calls at the open. With this exchange, I have now effectively raised my AXP short sale price to $42.05 I can see this stock ripping higher again tomorrow to kiss that trendline from 2007, $43.05 I suspect that AXP short interest is now back to where it was before Bear Stearns, excellent, leaving the toughest that either hedged all the way or capable of bearing extreme pain (or just outright reckless). BTW, 15 million shares sold short was the number before AXP peaked in 2007.
VIX is another stubborn creature, it just didn’t want to setup the pre-condition to lock in a “buy” signal tomorrow. I don’t know where it’s going tomorrow, except that opex Tuesday is historically the most volatile day. It may also be fitting that the three major index may lock in “sell” on the most bullish day (opex Wednesday). I don’t know what price it will be, but I would venture a guess at DOW 10565 (53% retracement of the big drop, same as the rally after 1929).
I am still stubbornly holding my AXP short shares, but I am hedged all the way. Give me a breakout and I’ll make money too.
November 16th, 2009 at 8:56 pm
Fritz, have a question about hedging… Since I am also short on AXP I like to follow on what you do… The account I am short from does not approved me for options yet. however i do have few other accounts that i can trade options (FYI I have never traded options yet)
To hedge does it has to be from same account you short from or you could hedge it from different account?
Thanks,
nastrades@gmail.com
November 17th, 2009 at 12:10 am
nastrades,
My broker’s rule is that they must be in the same account. There are margin requirements and buying call options to protect my short shares helps making the margin available (until opex) to play other equities. Check with your broker on that.
Also, what I think might help you is to set a loss-limit setting on your account. Contact your broker and put in this circuit breaker. Loss-limit can be set at 50% or 60% or 30% or whatever you want. It will be triggered if your trading loss exceeds the set point, all trades will be flattened (closed) automatically, without you having to enter the orders to close them. The only thing about this is that it will also close winning positions that you intend to hold for long term as well.
I am taking profits and preparing for a likely markey drop. I sold all my SU (Suncor Energy) shares. Sill holding ABX (Barricks Gold). Bought Dec 108 SPY puts to hedge against my ABX long position.
I have been bullish all this while and have not shorted this market for the last 6 months as it has risen. I am starting to get concerned, especially when I look at what is happening with Rusell 2000.
Fritz estimated that Tuesday could be down day, and Wedsday is a bullish day.
He assumed Monday should be slightly down but not correct.
November 16th, 2009 at 4:29 pm
Pete, you can’t be right all the time. That’s why I advise people to hedge.
I was wrong about the direction today, but I still made money.
That, in the end, is the most important thing in trading.
I don’t think I said Tuesday will be a down day, I said opex Tuesday is the most volatile, statistically speaking.
November 16th, 2009 at 5:39 pm
Fritz, thanks for clarification. I understood wrongly on Tuesday. woops, I bought some put toward the end of today based on my wrong understanding. Hopefully, it will go down on my way.
I was interested in you max pain theory for Monday of Opex, and Tuesday, Wednesday’s prediction. I checked past several months, this is what I got.
SP500 Open price Close Trend Following Tuesday
4/13 855 858 in uptrend down
5/18 928 909 Toping down trend/reversal down
6/15 942.5 923 in down trend down
7/13 879 901 Bottom up up
8/19 998 979 In down trend up
9/14 1040 1049 in uptrend up
10-12 1071.6 1076.2 in uptrend down
You are right Opex Tuesday is pretty volatile. Thank you very much for your help and sharing your leanings with us. I understand that statistics only high probability, not guarantee it will happen.
November 16th, 2009 at 6:05 pm
Hi, Fritz,
I’d like to learn your way how to hedge to protect our capital.
You shared with us when we long a stock (100 shares. e.g.) we need to buy 2 contracts put (double put), but which target price we should buy put ? The target price of put is same as stock price?
It seems to me if stock price go down, put price will go up. If stock price go up, we lost money in put. How can we make money because they work opposite to each other?
Another way of hedge is when we short 100 shares of a stock, we should but 2 contract calls? Or my understanding wrong again this time? Please advise!
They were tons of buy imbalances on the close, especially on the financials (WFC, C, BAC, & JPM). For those trading AXP, there was a buy imbalance of 500,000 on the close.
These buy imbalances are a bullish sign.. however not necessarily in the immediate future as in tomorrow.. but more like 2-6 weeks down the road..
November 16th, 2009 at 4:47 pm
Could they be short covering? BAC short interest is still double what it was before its peak, the same goes with C). I know JPM should be breaking out soon, as it is still too oversold compared to its peers; otherwise, it might be doing its 1.618x extension (of the drop from $47.47 to $41.52) downwards from $45.99 I don’t know at this point, and have no positions on JPM.
November 16th, 2009 at 7:46 pm
Zee – can you explain what does buy imbalances mean and how do you find those ?
Also, for the Nov 17th play, what strike of Dec options are you planning to play this with and where are you thinking this goes to ? Will you be looking to buy tomm or on Wed ?
Thanks
November 16th, 2009 at 10:13 pm
Order imbalances happen on stock exchanges such as the New York Stock Exchange when there are too many buy orders and not enough sell orders — or vice versa.
A buy imbalance at the close means someone wants to buy x amount of shares at 4:00 PM which the specialist pairs off himself.
Example: I`m a hedge fund and I want to buy 100 million shares of BAC on the close. I tell the specialist this in advance so I don`t mess up the order flow/price too much.
There are two ways to find imbalances: one way is to have someone directly on the NYSE floor who talks to the specialists themselves, or two, they are available to the general public on a tool on Sterling called MDX at 3:40:00pm and 3:50:00pm. Even then
I am not too keen on using puts due to me having a low risk tolerance. However if I had to really play puts I would buy 110SPY for DEC.
I`ll rather buy some SDS. I`m not really looking for a specific date at which I“m going to go short..I`m likely going to have shorts in the 1120, 1130, 1140 range on THE S&P.
November 16th, 2009 at 10:19 pm
The reason I`m not going aggressively short is because the main trend is up, and there`s a ton of cycles peaking in December and January which are pointing to 1200 on the S&P by Mid-December. The upside is still 90 points while the downside is only 35 points.. I think we might re-test the 1075 area by EOM, but don`t bank on anything lower..
The short play that is about to occur is only suppose to theoretically occur on nov 17th is suppose to return you 3.5% on 1x leverage. (1110-1075 = 35 points = 3.5%).. Once again I repeat it is not a very significant peak (11-trading day peak) so don`t expect anything lower than 1075.
GL
November 16th, 2009 at 11:48 pm
Zee, thank you for your comments here.
I was wondering if you could recommend a book or web site about these cycles that you talk about. How do you come up with these dates that the market is supposed to go down on?
Appreciate any direction to resources.
Brian Shannon webinar tonight at 7pm est. .. sign-up here:
http://bit.ly/3jLvKZ
Idan and Woo,
When I draw a resistant line from Aug high to Oct high using daily chart, I got the new top should be at 1141, If I draw resistant line from Sept high to Oct high, new top is close to 1128. While you and other folks talk about new resistant around 1120 to 1125. How did you make your resistant line draw? Idan told me he normally use 2-hrs chart once.
In addition after SP500 gets to the top, it will go sideway or straight down. Do you have any prediction? I heard rumor about government PPT team to manipulate the market. Prior to thanksgiving, they might prevent stock market from go down for good holiday image. Is that possible?
November 16th, 2009 at 5:31 pm
Pete, trendlines are just lines designed to fool people, use it as a reference for you to know where all the other fools will be looking at, but ultimately tops and bottoms are made by the big players with the big enough ammunition to create or break a trend. right now, everyone is trying to pick a top, so there is no top. it will keep on chugging higher until people (including you, with no offense) will stop blogging as to where the top is, etc.
November 16th, 2009 at 7:21 pm
bullish bear, thank you very much for explain this to me.
November 16th, 2009 at 7:32 pm
here, here…great advice my man.
November 16th, 2009 at 6:16 pm
Idan and Woo,
please ignore my previous mail for market top since woo already explained as attached:
Woo, you meant that SP 1122 will be this years top, and market will go south from here?
I heard analysts and fund managers talk that that stock market will move up in December as well?
_____________________________________________________________________
smart man. i’d really love to see an open at 1100 area tomorrow though, and then a large rise from there, but it’s so close to the top, we could go 10 points north and just call it a year haha.
now that we’re so close to my 1118 (60 minute) – 1122 (5 minute) top i have to start looking at other possibilities, and at the MAX top possible that is slightly above this.
Woo – please could you post links to stockcharts for your different stocks that you follow …
GOOG, AAPL, AMZN and your 5 min charts … and any other of your black charts
– they work for people w/o subscriptions too …
Thanks for the heads up on not buying AAPL ..:) would you buy if it hit and bounced off 205.21 ? I would expect a slowdown at 208 – ut then it may hust push through – what do you think ?
Some simple rules of thumb about trendlines:
-If drawing a line connecting tops/bottoms, make sure that the volume is substantially higher at points of contact (#1 mistake in TA as people don’t think about this)
-If at the moment of trendline break there is no volume, the trendline’s validity is called into question (#2 mistake in TA)
-If a trendline is not respected as resistance/support, ignore the line and don’t try to force your analysis on the market (#3 mistake in TA)
-If a pattern becomes too obvious, beware of fakeouts. One bar break does not mean anything.
-No one really knows where the market is going, so keep in mind the trendlines only signifies points of higher probability price reversal.
November 16th, 2009 at 8:33 pm
Hi, Fritz, and bullish bear,
Thanks a lot for great analysis for trend line. another thing puzzled me is news and analysts’ analysis. Some of them are right some are not right. In early July one of CNN analysts said market will go to sideway but it turn up a big run. One investor told me ignore CNBC and go to see WSJ or Bloomberg.com. Those analysis are more reliable. What is the best way to make good use of those information?
November 16th, 2009 at 8:48 pm
the best way to not to listen to any of them… for money they will BS whatever in their favor for in favor of people behind them!
November 16th, 2009 at 10:20 pm
Over time you`ll be able to tell who is BS and who is for real
November 16th, 2009 at 11:41 pm
Realistically, we should learn to make our own calls because we don’t know who is paying who to ‘predict’ market direction. Nobody can predict is, other than GS, hehehehe.
But seriously, we must learn to listen to the market and stop fighting the trend. Until it’s broken the market will keep going in the current trend. Managing risk is the key.
Meredith Whitney is calling for a double-dip recession.
http://pragcap.com/meredith-whitney-is-now-calling-for-a-double-dip
November 16th, 2009 at 10:29 pm
She was bullish on September 2nd, now shes bearish 2 months later what the ****? Is she bi-polar? Indecisive? I do not understand, What changed her mind? The market is doing fantastic, which shows we are doing great.. We are 450 points off the 2007 high on the S&P.. When will people stop uttering `double-dip`? Didn`t Pretchner say were going to new lows on Nov 2nd? What happened after that? We rally 9%…
November 16th, 2009 at 10:57 pm
Hi there. Out all day earning a dime. Looks like you kept the board in line. Market got a bit more buxom today aka top-heavy.
November 17th, 2009 at 1:39 am
Meredith Whitney knows her stuff my friend, and has proven that fact far, far, far beyond you and I both.
November 16th, 2009 at 10:59 pm
Looks like you pegged today’s trades Anj. Congrats.
zee, please do not be put off by one poster – I really appreciate your insights.
Too bad there is not an ‘ignore user’ function like on other boards.
Paladin, is isn’t Yahoo stocks. Let’s keep it on topic and respectful. I’m no angel, but today was a little out of hand.
Thanks to all – Fritz, morris and too many others to list, and Woo and Idan of course.
happy trading
November 16th, 2009 at 11:10 pm
Thank you for understanding where I’m coming from.
November 16th, 2009 at 11:59 pm
Mr. Palladin is on a roll! I kinda like his humor..its good for trading.
“We Jews have survived 5,000 years of persecution and bad bear markets by comic relief. And, in the end, we now own wall street.”
You got that one right buddy! in fact you guys OWN America
Our soldiers are fighting for your cause all over the world, so you better be nice to US 
Paladin humor is ok in my book. Without humor, trading is no fun and too stressful.
Never met a Jew I liked being around much, but
got give it up for their strong bonds throught the centuries…..blood and money…live by the law….rough times.
November 17th, 2009 at 1:31 am
Hey! That wasn’t me!!
It does seem like there has been a lack of moderation here lately. Maybe Idan should add someone new to the ST team since it seems that Woo will be busy with other things in the months to come. I think Fritz would be a good choice.
November 17th, 2009 at 1:43 am
Agreed 100% Morris, some poster’s might want to check their hateful thoughts at the door, or go to another site, no need for that crap here.
As per Pete’s request I am sharing my hedging strategy with everyone here.
The main trend is up, so unless SPX 1014 gets smashed to the downside, you’re asking for trouble if you short unhedged. You would only short at identified resistance levels (but who’s to say that they must act as resistance?); however, to prevent unexpected breakouts or M&A news, you buy double the call options.
For example, if I short 1000 shares of DOW at $29, I want to buy 20 DOW Dec 29 calls. Assuming each contract costs me $130, my hedging calls will cost me $2,600 and so DOW must fall below $26.40 for me to break even if I commit to have my calls expire worthless. If on the other hand, DOW continues to rise to $32, my short shares will be underwater. In this case, I will sell 10 DOW Dec 29 calls for anything more than $300 per contract, so now I’ve made $1,700 on the 10 call option contracts, which is sufficient to cover my cost base for the other 10 contracts leaving me with a net profit of $400. I can now decide if I wish to exercise those call options to close my short DOW position, or buy 10 DOW Jan 32 calls at $130 per contract and sell 10 DOW Dec 29 calls that I held, essentially making it seem like I shorted DOW at $32.
The advantage of the first option is you lock in a profit and can move on to your next target with no more residual risk. The advantage of the second option is you still keep your shares short, and have a chance to cash in on future drop. I employ the latter strategy on AXP, and that’s why I was really looking forward to every rip higher.
You only want to do this early in the options cycle. With less than two weeks left in the current options cycle, your decision should be 1) whether you want to employ the first strategy or the second, and 2) close current month options and open next month’s options.
You buy at support levels and go double put (who’s to say the support must hold?), or you can even go long with double put and write covered call. Write covered call at a strike price that you are comfortable selling your equities for (must be profitable, obviously) that may not have a chance of being reached, so that the call(s) will become worthless come opex. Double put protects you from a sudden price decline, as you can sell your puts for profit and still hold onto your equity. You keep on doing this for a while and there will come a time when the profit you make on all the transactions becomes more than enough to cover your initial cost of the equity purchase. After this stage, you’re risking money that you didn’t have in the first place anyway, so you can hold the equities for as long as you like (especially enticing if the stock is a dividend paying stock).
Now you see why bulls have the upper hand. Bulls never risk anything beyond what they put in, whereas bears risk everything. Being a short seller can be rewarding, but it can wipe out your account rather quickly if you missed the timing. This is why my trading method is timing based, not so much price based (like EW). When I trade based on price, my trade sizes are small. When I trade based on timing, I trade 100X the size. But I caution everyone here not to follow my trades because sometimes I can flip into suicidal mode when I attempt to front run a significant price movement, and not many people’s trading accounts can withstand that kind of abuse. Most of the time I do have technical reasons as to why I make the trading decisions, but the few times I deviate from those rationale I make sure I let people know (and you all saw that on November 6 when I posted my warnings).
November 17th, 2009 at 12:03 am
Awesome..Thankyou. It great to learn hedging stratergies. So far I have been LUCKY that I rode the trend…