Forex Is Crazy

Below is the risk profile of my SPY directional/hedge that was put on 6-22-10 for a debit of -420. I thought the range of SPX would be between 900-1040 and was just trying to devise a play to profit from that. I ended up buying the (10) 104 puts, selling (10) 95 puts, and then selling (6) 101 puts. I was trying to create something like a butterfly with little out of pocket expense in case I'm wrong, but a chance to win big if I'm right in that range. However, I was willing to give up a lot more on the back end in exchange for a little less of an initial debit as I would close the trade out early for a smaller gain rather than possible take large losses on the backside. So I just screwed around with the risk analysis and came up with the first image below. Now look at the second image, using the same strikes and prices, a simple 104/95 back ratio would have been an initial debit of -550 instead of -420, but look at the possible reward scenario. Both plays have roughly the same b...

Here is an updated risk profile/profit graph of what I have left of the SPY position that I started building and trading around 2 weeks ago. So I am nicely positioned for this sell off and what I think will be a continued sell-off. We breached the all important 1040 level on the S&P 500. I have a target of 100 for the next stop lower. At expiration this is where I make my maximum profit of $2,000 unless we really sell off hard then I make that or more below $94. But I don't see that happening before July Expiration. I think that 100 is a reasonable target, and if I think it will take 2 weeks it will probably happen this week as the down moves just always seem to happen much faster than I anticipate. This is basically all I have left on.

I think is is a little bearish, how about you? But I think it makes sense.     Sent to you by Dominic via Google Reader:     NOT IMPRESSIVE RALLY AT ALL -- My Four Tier Shorting Strategy via T3Live Blog by Brandon Rowley on 6/28/10 By: Scott Redler   This Head and Shoulders Pattern is almost complete. Question is how do you make money? What I recommend is a four tier approach if you have the pain tolerance, this is what I would do. I shorted Tier one today by buying the July 105 and July 102 puts and the August 105 and August 102 puts- Example- If you want to risk $100,000: This is the tier one entry in the 1070-1075 area. You buy July 105 and July 102 puts and August 105-102 puts tier one $25,000 (this gives you two months) If the market does bounce back to 1090-1100 into the Job's Report or Quarter's end you buy Tier #2 Puts– The July 105, 102, and August 105, 102 puts ($25,000). Above is your "anticipation of the break" that is sometime ...

Here are some of the rough guidelines that I'm working off of right now. No more than 50% maintenance margin. This gives me plenty of room to manage around volatile moves in my positions and plenty of additional buying power. So obviously the goal is to make a decent return off the whole portfolio but only normally using 50% of the buying power. I don't exactly have a monthly or yearly percentage return target right now. I'm kind of just trying to focus on individual good trade set ups. For the time being I'm sticking with a risk limit of 1% of trading capital per position on defined risk trades. On undefined trades like naked calls I will have to have stated exit points that should correlate to a maximum loss of 1% of capital as well. I have set a total risk threshold of 5% loss of capital in any one month, and no more than 10 positions at a time. This means that should I have 10 positions that they can't all be the same direction as that would possibly allow for a...

I sold July $14 puts for .14. This is similar to my VZ play in that I'm willing to own this name at this price so there is no exit point, I will take possession and write covered calls. There are two possible resistance lines on this chart, but I am ok with ownership so I'll root for to expire worthless but not cry if it doesn't.

I bought the August 100/101 call spread for .395. This is in contrast to my July 101/102 short call spread. I am currently looking to walk that call spread out for a few pennies, or even close it out entirely for a small loss as I'm more bearish now than when I put that trade on. My general feeling is that as earnings roll in starting in July, that no matter what actual earnings are, the guidance will not be what current projections are and thus earnings need to be restated for equities going forward. I think bond yields will continue to go lower until we get reconfirmation that GDP growth actually exists. It's also possible that the correction in equities and run in bonds has already properly discounted this scenario. So, in case I'm wrong, I also sold August 93 puts for .45. So this is a small net credit trade that carries risk below 93. For this to occur earnings and guidance would have to be great in order to get stocks to rally and bonds to sell off. I just don't s...

I sold July $27 puts for .15. I am willing to take possession at this quantity and price and write covered calls and pick up dividends so there is no planned exit to this trade.

I previously sold the July 40/39 put spread for .14 with the intent to close if it breaks its support line. Today I sold naked $50 calls for .30. I would possibly close this position as well if we broke resistance to the upside. So this is a long call away from being an iron condor. I am going to continue using the TOS risk analysis screen shots, but most trades will be done at IB until further notice. If we hit either side of the channel I'll probably close out the opposite side of the trade. I'll be quick to curtail losses in some trades as I've already got some nice gains in others. Update: This position crashed hard today closing literally on the support line. As of closing price it is close to my 1% of capital loss risk threshold per trade at about -1500. I would hate to close this out for a big loss when it's still above the naked strike. Today's price was down 8.68% and the SPX was 3.25%, that would mean AKAM has a beta today of (8.68/3.25) = 2.67. It's l...

I was in this name a few weeks back and got out for a small loss. But it was still on my radar and I saw an opportunity I might want to play. I've put a day order in to short the $85 calls. Unfortunately the stock pulled back today from the weekend prices I scouted the trade out at. I would close the trade out for a loss if it hit a new high, depending on how much time was left. That just looks like an extremely steep incline that I don't feel is sustainable. I haven't researched this fully yet, I heard something about a Russell 2000 re-balancing having something to do with this price action.

Interesting chart action as it touched support exactly today. I had sold puts, but maybe I should have been buying calls as it hits support. You get positive gamma if you buy the call but negative gamma on the short put sale. If there is truly a bounce you should profit more on the long call than the short put, probably should buy an OTM 25-30 delta call too. I'm going to look at those prices now and follow this.

As I mentioned in an earlier post I have positioned my portfolio to profit on the downside, which leaves me a little exposed to the upside move. But I think that the market is weak and will continue to be weak. I also think that 105 on the SPY will happen very quickly and if this level is broken which I think it will break, then I think it is possible that we see SPY 100 rather quickly. Where it goes from here I am not sure. But I think that this will be a huge phycological level. I am not sure about the head and shoulders pattern playing out or not but I do see the market going lower. With that said I have used this intraday bounce to sell some premium on some names I have been watching. I sold 3 July '10 $155/$160 Call spreads on CMG @ $1, Notice the rounded top and bear flag formation coupled with a weak market. At initiation the 155 strike has a 25% of expirying ITM. I also sold 1 July '10 370/390 Call spread on ISRG @ $1, Also weak and below the 50 day MA with the 370 at ...

One thing for anyone trying to collect on theta should realize is that by next friday which is 6 trading days away, 11 days of theta will be priced out of options.

I have slanted my spy portfolio to be bearish. I have taken off a lot of inventory the last few days. I am now positioned to profit in a move lower. I really think there is a high possibility that we go and break through the 1040 level on the S&P 500 which I thinks bring us down to 1000 level rather quickly. Again I will be ready to sell some more premium on a move to the upside.     Sent to you by Dominic via Google Reader:     Decidedly Bearish via Think BIG by Bespoke on 6/25/10 Yesterday we polled readers on which way they thought the S&P 500 was headed in the near term.  The results show that investors (at least ones that read Think B.I.G.) are decidedly bearish.  As shown below, 65% of respondents said the S&P 500 would go on to make a new correction low before making a post-correction high.  This is about as bearish as polls that we have done get, and it just shows how negative sentiment has gotten recently.     Things you can...

Some macro views...     Sent to you by Dominic via Google Reader:     EARLY LOOK: Squirming Bulls via Hedgeye Blog by keith on 6/24/10 "When you're finished changing, you're finished." -Benjamin Franklin My citing a Thomas Jefferson quote yesterday certainly stirred the pot. I haven't had that many responses to an Early Look note since I took the other side of Barton Biggs (on May 27, 2010 after Biggs suggested that the Thunder Bay Bear was going to "squirm"). I appreciate all the feedback. After getting plugged chasing a made for Manic TV CNBC "China" rally on Monday morning, and then seeing the SP500 close down for 3 consecutive days, the bulls are the ones doing the squirming now. The US stock market hasn't had 3 consecutive up days since April. Jefferson, like most politicians, was a professional storyteller, prone to hypocrisy, and subject to squirming. We know that markets don't lie; politicians do. What we don't ...

This guys is just been on fire since 2007. I can't help but listen.     Sent to you by Dominic via Google Reader:     Macro Market Thoughts via T3Live Blog by Brandon Rowley on 6/24/10 By: Scott Redler   WE are market Timers and our Mantra Has been to TRADE THIS MARKET BOTH LONG AND SHORT In January the Uptrend broke and it lead to a 9% correction off the highs. In early May the same type of Uptrend broke leading to a 13%-15% correction. If you followed the rules and sold correctly, you had the luxury of testing longs into Major support 1040-1050. If you chased the market at the highs and "bought excitement" you probably capitulated your longs into the emotion of the correction. The February 5th Reversal lead to a move to new highs. The same Type of Reversal pattern happened on June 6th. We put a scenario on the table that the rally could lead to a Head and Shoulders Top pattern on June 6th. You measure it along the way. The big area we said...

For the next three weeks I'm actually liking the put spread sale better. This is looking like a gold chart, which makes sense I guess as the flight to safety is usually to gold and US treasuries.

Taking a low risk play on this name. I charted this one a few days ago and tentatively planned to sell some puts if it continued down further. We've got two trend lines and the 200MA all at the same place. A break below these three and I'll exit for a loss. I sold naked $10 puts for .18

This is the one other trade I had on my radar for today. I'm looking at selling either the naked $40 puts, or the 40/39 put spread. Setting the risk at 1% of trading capital near the break point of the trend line near $40 for either scenario leaves me with a $540 net on the naked $40's, or $480-540 on the spread (depending on if I get filled at .10 or .11). The buying power needed is three times as much for the nakeds and obviously leaves you with extreme risk, so I think I just talked myself in to doing the spread. Initially I thought .10 reward for .90 risk and 100 contracts vs. 15 didn't make any sense, but now that I've done the math this makes even more sense, especially if I can get filled at .11. (Update: After my initial write up I took a look at IV. It is relatively low right now to its recent past, so what I did was increased IV by 12 up to its recent past of 55. I'm assuming that a break of that $40 trend line would coincide with a rising IV. Looking at t...