Forex Is Crazy

Looks like that reverse head and shoulders worked for a trade today. I sold a 114/116 SPY call spread at the resistance line (1095) that didn't hold up. I will look to sell another if we near the upper resistance line at roughly 1150. I didn't put on any positions, just practicing charting and following in the after hours. If this was the regular market session and this pattern formed I would probably buy a straddle and see if we got a breakout in either direction.

I closed out what I considered a legacy position today. I had been holding naked $12.50 strike puts on JPM since March 2009. Because they were more than $25 OTM I was hesitant to even pay a .05 for something that should expire worthless, but it was a constant psychological position that I no longer wanted to be in. The theoretical pricing calculator said the option should be worth nothing. The BxA was .14x.21. I paid .18 and got out. It's been difficult because I felt as if I was writing a check for $360 for something that is worth nothing and not looking at it as I've made a few thousand profit. But there are 8 more months until expiration and theoretically anything can happen. Beyond the psychological desire to end the position the remaining reward doesn't merit the risk. I certainly wouldn't put this position on today, which in essence means it doesn't make sense to keep it. I sold to open at $3.80 so leaving .18 on the board is still netting 95% of the maximum p...

Yesterday I was watching the ES in after hours and decided to short for a quick play/hedge. I went to bed short and no stop loss because if I woke up and we rallied strong I was willing to take this loss and then close out my three positions. I'd rather stay on the sidelines right now. I got lucky and made $500 but this really served a dual role of a hedge in case we crashed this morning before I could take positions off. I ended up only closing one position  for a $225 loss and decided to keep the other two on because their IV is up so high the BxA spread on the Jan 11' spreads I want to close out are too wide. I'm going to wait for IV to come in and some more passage of time before I attempt to take those off. This means I am gambling that a major market move down doesn't  happen and end up costing me more. I'm not saying it won't happen, I actually fear it enough that I'm looking to cut my risk there. The vertical lines I drew are my entry and exit points...

Sitting down today to update my results for May was a mental positive to the upside. Once again my memory was only as good as my most recent trades. I was fixated on the quick loss I took on the ES trade, especially since right after being stopped out for a loss it hit my downside target. For the last week I've just been thinking about how I lost -$275 instead of making $1000. So reviewing the scoreboard every now and then and looking at the overall is helpful. I wouldn't say I forgot about the other trades, but I was surprised to see that some of them were only 18 calendar days ago. They truly feel much older as hours feel like days when you've got a losing position on the books sometimes. For the last week or so I had a mental tally going and all it contained was the GOOG naked call and a few small trades that were basically a wash. I thought I was under $1000 for the month but it was higher. I think this is because I had a MTM gain on (MO) for a while that I had mentally...

I never posted April OPEX results because I just didn't make the time and update my spreadsheet. The truth is I had a few plays and I knew it was roughly a break even month so I wasn't concerned with it. This is a working spreadsheet model that I'm trying to refine and keep simple. I'm still in the process of rebuilding all my past trades going back to July 2008 when I first started trading anything other than a covered call. In addition to keeping stats like winning/losing % and average gain/loss, I also want to keep track of how much commissions I'm paying versus the net profit, and try and find a return on risk measurement that makes sense. Right now I'm still only deploying a little bit of capital until I define my overall portfolio strategy in terms of position sizing, once that is established I need to keep track of monthly and total portfolio return or return on value at risk. I might have to keep two numbers, one being the actual return on risk for the m...

I wanted to share something I'm currently reading about in case you hadn't already learned about it. It's called a HV Mesa or Plateau. Since HV uses the last 30 day of actual movement, if you had a one day spike for some reason it will cause a huge movement in the HV chart, 30 days later when that event falls of the calculation for HV, the HV line drops just as proportionately. After reading about this I decided to look up ITMN as I know they had a few recent big one day moves. You can see the first mesa with the rise in stock price from their leaked information on drug trials, then it falls off 30 days later. Then you see the spike from the second announcement where they didn't pass the drug trials. Sometime in the next few weeks we'll see that HV line fall back as this event works its way out of the last 30 days in the calculation. I just thought it was good to understand what's driving the HV line sometimes before we go making any decisions on a potential pla...

    Sent to you by Dominic via Google Reader:     7% of S&P 500 Stocks Above 50-Day Moving Averages via Think BIG by Bespoke on 5/20/10 One day in early April, 93% of stocks in the S&P 500 were trading above their 50-day moving averages while 7% were below their 50-days.  Now the exact opposite is true -- 7% are above their 50-days, while 93% are below.  And just like the reading rarely stays above the 90% level for long, it also rarely stays below the 10% level.  As shown in the chart below, the indicator is currently at its lowest level since March 2009 when it hit 5%.  During the depths of the collapse in late 2008, the reading got down to zero percent.  At this point, investors have to decide whether or not they think things could get as bad as they did in late 2008.     Things you can do from here: Subscribe to Think BIG using Google Reader Get started using Google Reader to easily keep up with all your favorite sites   ...

The last paragraph is so true!     Sent to you by Dominic via Google Reader:     Managing Risk via Attitrade-Proactive Trading by Darren on 5/19/10 Over the years I've been fortunate enough to get to know thousands of market participants. Some are long-term investors others are scalping pennies per trade on thousands of shares while others manage millions of other people's money. The interesting theme I picked up on with nearly every one of them is that they each experienced panic and uncertainty at certain times in the market. Oftentimes, this panic stems from the inability to make sense of the market, to gain control of market participation.  Thoughts such as whether or not too much capital is at work or perhaps not enough or even whether or not to be in the market at all seemed to consume them. This ambivalence can consume and debilitate even the best market participants. The uncertainty or self-doubt about market participation is c...

how-market-makers-buy-units-to-stay-in-business I think that the first link is a very interesting strategy and something I would like to consider. To me this would had been a nice addition to the trade in ITMN. If I recall correctly the trade was long covered calls. So I think going out and buying really cheap puts or calls could had served well. I actually went back into the think or swim platform and looked at buying the $15 covered call which on 3/4 was going for 10.41 and buying the $35 calls that were going for 0.15 at the time. The stock was trading at 14.61. By 3/10 those way OTM calls that you purchased for 0.15 were worth 3.90 with the stock trading at 38.90. On this simulation I did a 100 covered call position and used about half of the premium collected to buy 10 calls. These calls that cost $150 now added $3,760. I know I used the calls only because I remember what direction the stock finished and it was the easiest to illustrate. But I can see the power of the OTM "un...

I liked the IWO trade idea at first so I decided to analyze it further. I think the time frame used and patterns seen of chart drawing can be subjective. I'm using a lower support line than him. He never mentioned IV in his analysis and after I saw the current disparity I decided to do this trade but at a lower strike and using an exit point based on my TA. Below is my trade worksheet. Trade Worksheet Date:               5/18/10                         Underlying:     USO Trade Idea:      Sell June 32/30 put spread Buy/Sell Qty Ticker Month Strike Call/Put Price Under.  Price Sell 5 USO June 32/30 Put Spread .50 $33.50 Pre-Trade Analysis:  This is more of a gut feel than anything as I feel selling in oil is a ...

As I mentioned yesterday at our meeting in Long Beach, I think that there is still some downside in this market. So I am going to buy some 114/110 SPY bear put spreads. As you can see from above I am selling 5 put spreads @ 1.42. I am setting my stop to the 116-116.50 (grey area on chart below) . As this would represent a gap fill from last Thursdays gap down and would also have SPY retake the 20 period moving average on the 20 day 1 hour chart below. I am risking about $163 if I were stopped out at 116.50 and maybe a little less as a move up to this point may bring volatility down. The max gain at $110 is $1290. I sold the $110 as this is the area of the 200 day moving average witch I think could be the next target for the SPY ETF to head.

I was short 15 May GOOG $600 calls with entry points of .97 on 4/26 for the first 5 and .35 on 4/5 for the last 10 contracts. I closed them out today for .05. There is close to 0% chance this would have lost money with the stock at $505 and 8 trading days left. But for .05 it isn't worth the risk, and more importantly, it was tying up about $100,000 in margin for some reason. I tried to figure out the maintenance margin requirement on IBs site but wasn't able to find it. The calculations for a portfolio margin account are not stated clearly in words nor are there any mathematical calculations. I would rather have the 100K margin available for another opportunity then tie it up for another possible 15 x .05 = $75. Total profit on the trade after commissions is $740 for 13 trading days. I can't exactly figure out the RoR because the maintenance margin number isn't anywhere close to the initial margin requirement. But assuming the rough figure of $100,000 the return is ($7...

I had sold May $17 naked puts for .38 back on 4/30 when BAC was at about $18.25. At the time I just felt like owning at $16.62 was a good enough entry point for me so I was looking to sell puts and ready to take possession. I posted recently where I missed the opportunity to close them out at .18 the very next day, since then it's just drifted down in a fairly tight range. Theta decay made up for the downside move in the underlying so I was able to exit at .35 for about a push. Besides the chart working against me, I see that Morgan Stanley is now being investigated and I'm thinking to stay away from the financials in general until voting on the financial regulation bill is over because all the big banks were in to the same transactions. It makes more sense to play safer names like MO with a dividend rather than BAC at this point.

Update As far as wanting to get out today, it looks like I got extremely lucky by being patient and waiting for an opportunity. I exited at $78.70. When we deviated from today's trend on what looked like a spike I chose to get out. Who knows what will happen by expiration Friday next week, the beauty of it is that now I no longer care. I'm happy to take a small loss and be out rather than looking at the closing price and wishing I took the opportunity that presented itself today.

I've been uncomfortable with this trade and been looking to exit at a level I'm comfortable with. I just got that moment. I closed out for a loss of .06 per share plus commission, somewhere in the area of a $40 total loss. It was a $2000 loss a few days ago so I'm happy. As I mentioned before, this was the last trade made before I had a trade worksheet made up. A post trade analysis showed I wanted no part of this trade for two reasons. The first is it doesn't pay a divided, so it didn't make sense that I tied up 13% of my total trade capital in a name like this. The second was the chart. It's trending down and I went long with no thesis behind why I thought this would reverse. So once again, glad to cut it for a small loss and consider it a learning lesson. I'm kind of happy in that using TA I decided to actually wait for a bounce up to resistance before I cut this position rather than taking a bigger loss earlier. And just in the time of this writing it lo...

I want to see how a strategy will play out and it will most likely be a multi-month expirement. What I want to do is look at put diagonals. I am looking to buy a put way out in expiration ATM. So for GE I am looking at the $17.50 put. Then I want to sell front month options against that purchased put. I realize that a few things could play out: 1) The puts I sold expire worthless and I can do it again month after month. 2) The puts expire in the money in which case I take delivery of the stock and start to write covered calls against the stock, which now gets me the same risk profile as a call spread (with a put, stock , an sold call). 3) The puts expire in the money and I could immediately turn around and exercise my right to sell with the purchased put. To me this is the least desirable alternative unless the stock has moved so much against me that it just makes sense to cut the trade with a maximum defined risk. I am leaning towards trying to play it with scenario 1 and 2 in mind. B...

I did not have time to post about the new put sales I made to take advantage of the huge increase in volatility, but I sold 1 put in each of the following names: GE, F, TSL, and MDR. Since Friday the VIX has gone from above 40 to around 27. So the volatility crush that I was expecting and trying to exploit came this morning as I was able to buy back all of the puts I sold at 50% or greater of the premium I collected. To me this sale was just a no brainier and I did not fill compelled to do any fancy chart work and analysis. I knew the bet I wanted to make and just had to find the names I wanted to make it in. It obviously could had gone the other way and still can but I was able to exploit a volatility spike as I set out to do. All in all it was only a gain of about $170.

I watched a video yesterday on Diagonals and saw the example of how its similar to, and therefore often an alternative to, writing a covered call. Instead of owning the stock long and selling a call for a traditional covered call, you buy an ITM call instead of being purely long the stock and still sell a covered call. The risk/reward trade off is you're paying some time premium for the ITM call, but limiting your downside risk to the debit paid for it as opposed to having potentially unlimited risk down to 0 of owning a stock. There is another trade off to think about though if the stock pays a dividend as you wouldn't receive this owning an ITM call. I'm going to look at a covered call I'm interested in today and then put both that and a diagonal on in the paper trade account so I can follow along. I know I've talked about using real money even if it's only 1 contract to kind of force yourself along to learn, but I think going forward there is going to be seve...

I copied these from an IWO video so you might have already seen them. Before the recent crash I followed the logic on his thesis that HV was due to mean revert. Following these indicators is still a bit new to me so that's all I was doing, just following along. I'm pretty sure you mentioned the other to me recently about the number of stocks above their 50-day. I'll continue to follow along going forward and see if I want to incorporate these indicators going forward. What I like about them is they are obviously leading indicators that allow you to act ahead of time at a cheaper price, should you decide to act. Buying put protection now makes a lot less sense than had you tried to front run a possible mean reversion. I've only got two trade ideas I'm interested in looking at on Monday. One is selling an OTM VIX call spread. I'll take the risk that we close under 40 by May expiration. The other is I'm going to price out some calendar spreads on a few stocks t...

I shorted the ES in after hours at 1120. I put a buy to cover at 1100 which would be a $1000 gain because each point is worth $50 on the futures contract. I put a stop loss at 1125, so risking $250 to make $1000.

A member of the IBD 100 which I go through every weekend. This list of is supposed to represent the 100 best companies by way of fundamental and technical ratings. As I have mentioned before I am trying to pair down my universe of stocks and am trying to use IBD for that. I am not fully committed to it yet, but most of the stocks on my watch list are members of the IBD 100. Anyways as the market is pulling back I this stock has pulled back from its all time high made in the latest run higher of 19.27 down to about 15.60. When I first identified the stock I thought the stock was overbought and wanted to wait for a pull back to a more attractive level. The 50 day moving average was about $15 and I saw sum good support around $14, so I set my alert around this area and a week later it is know at what I consider an attractive price which offers great risk/reward. I am buying a bit in front of the 50 day moving average as one thing I have learned over the last few months and especially more...

Have you ever used this feature on IB? Its under "Analytics", then "Risk Navigator"

Start mentoring with Dan Passarelli (started out slow but week 5 was a great learning week, lots to build on from here) Spend some time getting familiar with TOS analytics platform (definitely feel more comfortable but I've only scratched the surface of its power) Finish book on the Greeks, start new books on technical analysis (read Trading With The Greeks twice) Create trader filter worksheet (really happy with my progress here, I have a working template in place that I'm comfortable with) Try to get options trading group together in person and online (we had an in person meeting but there I would deem it a failure, only half the people showed up and there didn't seem to be a cohesive interest going forward, but we might have added one contributor to the blog this week) Work on updating trade tracker with past trades from last 18 months (didn't make a whole lot of process here, it's a very time consuming task) Results for May are in Red

    Sent to you by Dominic via Google Reader:     Generated feed for "http://www.optionszone.com/" via http://www.optionszone.com/ Google feed by Google on 4/30/10 If I'm Making Money, Nothing Else Matters, Right? Wrong! Just because you are making money now, does not mean you are going to succeed. Learn more.     Things you can do from here: Subscribe to http://www.optionszone.com/ Google feed using Google Reader Get started using Google Reader to easily keep up with all your favorite sites