Forex Is Crazy

http://feedproxy.google.com/~r/T3LiveTrading/~3/rMB7xor3H1o/time-to-build-portfolio-as-market.html Sent to you via Google Reader Dominic

I just went to update this trade as I closed it out and realized that I never posted the initial trade. Last week after I closed my losing SPY call back ratio I immediately put on a put ratio for August. I bought a 1x2 110/102 put back ratio for $1.02 debit and just closed at $1.62. Because of my experience last month of trying to go for a home run and ending up losing big, I decided to take some profit now and risk missing another home run. Since this is a five week cycle and we still have plenty of time I wanted to book this profit now and look to enter another bearish trade if we bounce higher. I'm also a little perplexed at the TA chart action. I wasn't expecting another breach higher of the resistance line so maybe it's time to accept that that line is no longer valid. But again, since I'm not entirely sure where we're at I took the trade off and will look to re-enter.

It's hard to believe now that the month is over that it caused me so much stress. I got in a bit over my head by being too aggressive on a few trades, and not having an exit point or hedging strategy ahead of time on another. It's easy to say that I learned a lot and therefore I'm OK with the loss, but that's not true. While I am grateful for all I learned, I'm truly upset at losing because of my mismanagement. I was on tilt for a while so it's time to regroup and plan/trade more effectively so this doesn't happen again. I basically traded slightly negative with commissions making up the majority of the losses.

I sold (10) 110/111 SPY call spreads for .45

Incase anyone wants to make some earnings plays this week.     Sent to you by Dominic via Google Reader:     Earnings Season Stats and Key Reports This Week via Think BIG by Bespoke on 7/12/10 With earnings season kicking off this afternoon, we thought we'd highlight a few stats on the subject.  Over at Bespoke Premium , we have a database with every single earnings report for US stocks going back to 2001.  This totals out to 65,210 individual quarterly reports.  Of these 65,210 earnings releases, 62% of companies beat EPS estimates while 25% missed.  Sixty-two percent have also beaten revenue estimates, while 38% have missed.  Predicting whether any random stock will go up or down on the day in response to its report is just about like a coin flip.  Of the 65,210 reports in our database, the stock has gone higher on the day 32,563 times and lower on the day 32,251 times (396 times the stock closed the day flat).  Unless you dig deeper into the numbers,...

Volatility in the front month is running close to 100% going into earnings with vol in the back months and later at about 50%. One way to play this is to get short vol by way of a double calendar play. You could buy the 11 call calendar for $0.26 and the 10 put calendar for $0.23 . You would be selling 76% vol on the call calendar and selling 82% vol on the put calendar, while buying 46% and 48% vol. The break evens on this trade would be 9.50 and 11.66. This gives you about 12% to the downside and 8% to the upside. Options markets are factoring in about a 8.5% move. So your thesis would be that it will be at least less then this on a move to the upside and up too 12% on the downside, ideally less either way. The average return for a 10 lot would be about $150. I am not sure if I will take the trade, but I just thought I would share the idea.

As we all know this week is options week as well as the kick off to earnings season with Alcoa reporting after the bell. Two weeks ago the price action in the market made you feel like the world was getting ready to end again, but then last week I think surprised a lot of people. I think a lot of people expected a bounce but not as big of a one that we got. The SPY bounced about 6-7% in three sessions. I am not really sure what to make of the price action, but I am still holding my ground and am prepared to make adjustments as necessary. Anyways first I want to put an updated chart of for the SPY with my range of profitability that I originally posted: We are approaching the upper end of my range. I will admit I am a little uncomfortable but still remaining calm as I have a hedge in mind at SPY 109 that will stop my losses. But first lets look at my current P&L graph and risk profile: I went through many iterations to try and come up with the best hedge possible. First off let me s...

I found an alteration to the trade that I'm happy with. The first picture below is my original position, the second is after I put on a 109/110 back ratio. This trade was a small debit and decreases my losses from 108.50 - 110.00, at 110.00 they are about the same, but at 111.00 or higher the losses get even greater. I had to use some additional buying power to put this on but not much. If SPY should rally strong next week and break the resistance line I would have to admit defeat and take my losses and get out. I'm not comfortable holding this position in to expiration. I didn't like the ES hedge risk/reward ideas I was coming up with.

Something to keep in mind as we head into earnings seasons.     Sent to you by Dominic via Google Reader:     Earnings Season Starts Monday via Think BIG by Bespoke on 7/7/10 Earnings season starts Monday with Alcoa's (AA) report after the close.  People are hoping earnings season will get all of the other issues out there right now off the minds of investors, but that means earnings have to come in strong.  If the numbers come in weak, it could be a long reporting period.  Below we highlight the performance of the S&P 500 during earnings seasons and off-seasons since the bull market began in March 2009.  As shown, the last earnings season was the worst in terms of performance since the recovery began, and the current off-season has also been the worst.  Heading into this earnings season, one positive is that expectations don't seem too bullish.     Things you can do from here: Subscribe to Think BIG using Google Reader Get sta...

Yesterday I sold the 101/107 July Strangle for a $1.50 leaving my break evens at 99.5 and 108.5. I like the trade but the downside risk was making me a little uncomfortable so last night and this morning I was trying to come up with an affective hedge with a very low cost. I finally landed on the put Condor. This morning I bought 7 100/99/98/97 put Condor for $0.09 or a total debit of $63. This effectively moved my break even down to 97.72 by July Expiration. The first picture below is the Condor in isolation, then I have the strangle (which by the way is now unbalanced by two additional 107 calls sold to the upside) and Condor in aggregate. If you can think of a cheaper and more efficient way to accomplish such a hedge please comment.

This play is no longer a hedge as I've closed out all the downside risk I face. At this point with only 8 trading days left I'm going to alter the trade. Below is the before and after risk profile. All I'm going is closing out 4 of the long 104 puts. This leaves me with a 6-lot 104/101 long put spread and 10 naked 95 puts. What's interesting about my remaining inventory is the way you view it. I originally had on ratio put spread, followed later by a ratio call spread. With the remaining make up I essentially have a long put spread, long call spread, and short strangle at 95/107. What's also interesting is it looks like the area around 103-105 is a dead zone where little to no profits can be had. But keep in mind that is only an at expiration diagram. The last slide is two days before expiration where you can see that that area is actually almost as profitable as anywhere else in the analysis. I do plan on exiting the trade by the end of trade on the 14th as I'm...

So last week, I used the weekly options for the SPY to construct a few calendar trades. As I expected the time premium in the "front week" vanished very quickly as we headed into the holiday weekend and into the last day to expiration. The theta or time decay was really cool to see. But something that I had not expected to happen was how fast the "back week" options lost time value. They lost much more value relative to the front week options than I had anticipated. From what I saw part of the drop which I had expected came from the time decay. But the part I had not anticipated what the huge drop in vol that totally just crushed the profit of the position. For example, at about $102 the position was suppose to make about $1,000 at initiation, by the end of the day on the front week expiration that profit shrunk to $100. Anyways I should had closed that position out on Friday instead of rolling it, but lessened learned and I will move on. With that said, today I am ...

At this point the only real potential for gains I have left on the books is a SPY put hedge that can finish anywhere from -420 to +5000. Should the market rally back a bit and thus kick myself in the nuts for closing out a trade at -1620 instead of +840, I'm looking for a way to maybe capitalize off such a move. If we get a bounce tomorrow I'm thinking about putting on a call backspread, now that I know more about them. This is pretty close to the reverse of the SPY put play I have on but opposite. So below is the individual call backspread and the combined position should I put it on. My risk would be if SPY closed higher than 109, I just don't see SPX above 1090 two weeks from now and I'm willing to wager accordingly. I just think there are too many people who would love to get out at even money of anything they put on in the last few weeks. Closing above 1040 at this point would be a victory, I don't see another 50 points on top of that. This call backspread can ...

Looks like there could be a new sheriff in town. What I mean is new relationships might be forming in the market place. Equities were trading in lockstep with the Euro, but maybe that does not hold anymore. Will see!     Sent to you by Dominic via Google Reader:     Dollar, Euro Break 50-Day Moving Averages via Think BIG by Bespoke on 7/1/10 The US Dollar and Euro have made big moves today.  The Dollar index is down 1.8%, while the Euro is up 2.29%.  These moves have caused the Dollar to drop right through its 50-day moving average, while the Euro has broken above its 50-day.  This is the first time since mid-April that both have been on this side of their 50-days.  If told of this big drop in the Dollar and rise in the Euro and asked which way stocks went today, most would probably guess higher, but that was not the case today.  Want actionable advice from Bespoke?  Subscribe to  Bespoke Premium  today.     Things you can do from here: Sub...

Whoops, I'm sure Dennis Gartman and his "famed Gartman Letter" will be on Fast Money today saying how he got out of gold just in time when in fact he told the world two days ago that although he wasn't a gold bug, gold was about to go hyperbolic. It must be tough trying to predict the future. And in fact it is, that's why people try to play both sides of the fence at all times when doing public predictions. Stop listening to talking heads or bloggers and start listening to yourself. That's my free advice for today. Part Deaux

Yesterday was touch and go as until the last hour the stock was poised to close within the channel. However, even had it not closed in the channel I had already found myself starting to look for ways to stay in the trade past my trading rule threshold of no more than a 1% of trading capital loss, rather than just admit my planned exit strategy was at hand and exit the trade. Below are just some of the ludicrous ways which I tried to justify my actions. Trading rules are new to me, I never had them in the past and probably because I don't generally like rules. But since this is my capital at hand I understand their importance and happy that I did exit the trade within my rules. Had I not done so I would just be setting bad precedent for the future. Redrew lines to be more liberal to give myself some wiggle room Justified that only the intra-day move was outside the channel but the closing was not. The problem with this is my channel was drawn with intra-day lines...

7/2/2010 Update: So here is an updated profitl loss graph of the original position as we head into the close: Take note of the change in the profit potential. At $102 when I first put this on I had a max profit of about $1k and now it has shrank to $100. The vol collapsed just as I thought on the front month, but collapsed a lot faster then I thought on the long options. In the future I will need to find a better way to hedge the short puts sold. That may mean that I have to go a little further out in time to buy the long puts. With that said I did however roll the long puts into vertical spreads before vol completly collapsed this afternoon, and you can find the new P&L chart below: I really did not want to take risk into the weekend until I saw todays price action. So I rolled in basically a double vertical spread. I start making money below 102 and max out at 99 on the SPY. My thesis is we get there next week. But I don't have much time to be right. So Like I said in my prev...