Forex Is Crazy

I kind of lost my will to be in this position. Besides breaking its uptrending channel and making a series of lower highs, it doesn't pay a dividend. So arguably I should have only been in it using a spread and not cash secured puts as I really wouldn't want to own. It's a bit too volatile for me. I sold to open at .45 and just closed out for .27. That's only $165 after commish and not the $400 I was hoping for. But not bad considering I got short Wednesday at the close. 

Heading in to the week I was short-term bullish, but since I already had bullish exposure via naked puts on MCD, AKAM, PM, and naked calls on VXX, I was content to just sit on what I had and not take on any more bullish exposure. It turns out the market doesn't care what I think and when SPY failed exactly at the trend line today I waited a bit to see if that held. I ended up shorting (20) SPY 110 Weeklys at .10. The odds of finishing ITM were less than 10% and return on BP is (200/9000) = 2.2% for 4.5 trading days. I'll take that risk. We would need a greater than 4% move before I start to incur losses. If that happened I would look to roll the trade and sell more OTM SPY calls or maybe even a weekly call spread for next week. We've been in a down trend channel all day since hitting the longer term downtrend. Trade Update 9/2/10 I've most likely got my hand caught in the cookie jar here. Though these weekly options that expire in less than 24 hours are still .50 OTM, t...

Again I am keeping my positions very small but managable. After the rally in equities that happened on Friday we saw a huge selloff on the TLT. Today the markets are giving back some of those gains and we are getting a pop in the TBT which is a double inverse of TLT. This morning I sold 1 Sep '10 $30 put at $0.72, which at initiation TOS is showing a 38% chance of expiring ITM. The breakeven on this is 29.28 with the lows put in last week at 29.77, I will re-evaluate if these lows are broken.

Today I decided to put down in writing the culmination of the weekly information inputs I use to try and judge what is going on, and how to try to profit from it. I have to say this experience was similar to writing out formal trade ideas for the blog in that not only was it a good learning experience, but I also enjoyed it. I typically kind of make mental notes of things during the week and once the markets are closed over the weekend I am able to piece things together and then look for opportunities accordingly. I like the written document and will experiment with it going forward. I want a full disclaimer in that most of what is below is not original content and not intended to be so, but rather its my way of aggregating much of the data/info I come across during the week in an attempt to make some useful sense of it. Weekly Wrap-Up Report Week ending 8/27/10 Indexes: DOW finished down for a third straight week, a Friday rally left it above the psychologically important 10...

I had never heard of the CBOE Implied Correlation Index before. It looks like its been out for a little over a year. It's something I plan to keep an eye on and use in my basket of inputs to try and gage market conditions. Cut and Paste from CBOE below The CBOE S&P 500 ®  Implied Correlation Index The CBOE S&P 500 Implied Correlation Index is the first widely disseminated, market-based estimate of the average correlation of the stocks that comprise the S&P 500 Index (SPX). Using SPX options prices, together with the prices of options on the 50 largest stocks in the S&P 500 Index, the CBOE S&P 500 Implied Correlation Index offers insight into the relative cost of SPX options compared to the price of options on individual stocks that comprise the S&P 500. CBOE began disseminating daily values for the CBOE S&P 500 Implied Correlation Index in July 2009, with historical values back to 2007. CBOE calculates and disseminates two indexes tied to two d...

On Wednesday with the SPX approaching the lower end of the recent range near 1040, I decided to get cautiously bullish by selling some OTM puts on names I would like to own on a pullback, assuming the pullback doesn't turn in to a crash. I also sold some upside calls on VXX as without another new shoe to drop in the next three weeks (which absolutely can happen) this too is a pretty conservative gamble. I was just looking to put on what I consider to be some low risk trades to generate some income while I have my mind on a job search here in Chicago. The  plan is to continue bringing in something to contribute towards expenses while I find a job and the get more aggressive deploying capital once I'm comfortable psychologically. Below are the trades and charts, best case scenario on these is roughly $1100 assuming setting GTCs at .05 and commissions. Worse case scenarios are theoretically unlimited. I'm also scalping the ES for peanuts when I'm bored and have a few vi...

As I commented on my RBOB futures trade, I was stopped out but felt good about the trade in general. I wanted to take a moment to put into perspective what I was seeing on the chart and what indicator I just added to my arsenal as a confirmation to what I saw on the chart. If you recall, the primary reason that I put on the trade was do the fact that I thought it was oversold as it had been down 12 of the last 14 session when the trade was initiated. Today I added the RSI (relative strength index) to my charts as a confirmation for such oversold/overbought conditions. I am not one to add tons of indicators to my charts as I like to keep things pretty simple. But I really like this one and I like the methodology behind it. So anyways lets take a look at the chart: Notice the RSI indicator on the bottom of the chart screen shot. As you may or may not know, as the RSI approaches 30 it indicates oversold conditions and may indicate a relief rally is coming, and as it approaches 70 it means...

I've noticed that the ES tends to trade in a narrow range in after hours, presumably due to lack of volume. In my opinion support/resistance lines on the ES in after hours have seemed to be pretty reliable for a technical trade. Since my overall market bias is down and I'm not afraid of a sustained market bounce, I'm going to short ES here and look to scalp a few points before morning, will put a GTC in at 1050. If it breaks resistance above I will not close out for a loss but rather pucker up and keep my GTC on.

I have been pretty bearish on equities and oil related commodities for the past two weeks. The markets have seen a sizable pull with SPY testing 113 on 8/9 only to be rejected to trade lower, hitting an intra day low of 104.97, that is about a 7% move. The important level that people were watching for was the 104.5 to 105 level on the SPY. Once this level breaks the June low of 101.13 is game on. But today the market voted with its wallet and said it was not ready for this move just yet. I think the market has to digest this latest move before moving lower. The market is a bit oversold by my observation. Trading in lockstep and even suffering steeper losses were Crude and RBOB. Crude has traded down 12 out of the last 14 sessions and RBOB down 12 of the last 15 sessions. Again I am sensing some overbought conditions. Although I remain bearish on most asset classes in the medium term, short term I am ready to take a low risk high reward trade to the upside in RBOB. Being that I am playi...

Yesterday marked my first day of trading in the new position. For my first trade I sold an Iron Condor on RBOB I sold 31.96/2.00/1.80/1.76 October Iron Condors. These options expire on 9-27-10, leaving about 35 days to expiration. I collected .0215 from the sale. The multiplier on the RBOB contract is 42,000 gallons. So I collected a total of $2,709 on a risk of $5,040, or 54% on risk. I profit on this trade in the range of 1.7785-1.9815, a 20ct range. I will keep you posted.

Here is the 2nd of 4 series on the Greeks from Dan Passarelli's book: Gamma is the second derivative of price or put another way is the first derivative of delta. It is the rate of change in delta for every $1 move in the price of the underlying.

I am reading through Dan Passarelli's book for a second time now. I feel like I have a good understanding of the Greeks, but I want to internalize them and will do this in a series of posts. Below is visual diagram that I put together to help internalize Delta and how it changes in relation to time, volatility, and price. This is the best and most effective visual that I can come up for the way my brain processes information. I want to have this diagram ingrained in my head like I do for the different strategies. Look for future posts in the coming weeks on Gamma, Theat, and Vega.

This month's negatives are that I made one mistake that cost me $35, and was impatient and deviated from another trade for no apparent reason other than I was skittish that day. But I also ended up overall positive this month instead of negative because I didn't panic and close out my trades when the market moved against me, which is something I've done in the past. So, psychological victory along with monetary victory is good. I attribute the ability to sit on losing trades without panic to a combination of small position size, defined risk, and conviction in my initial trade ideas. Last month I felt I over traded and ended up losing money. This month I was really hands off and ended up doing well given the amount of risk taken. $1666 doesn't pay the bills, but I'm building towards a long-term goal which is to get consistent and confident, which will allow me to scale my plays up to a point where trading profits will cover the bills.

Today is options expiration and as we left it yesterday we noted that there tends to be a postive slant in prices, but we did not say why. Markets tend to trade up on equity option expiration due to arbitrage funds covering short equity positions (i.e buying stock) as they close out their option hedges and roll to the next month. This does not however change my bearish stance as one day means nothing. All week I have been sending out updates and price targets to the downside with the wishy washy exception of /HO, which has the potential to be added to the bearish camp today. Before I go into the futures update I want to talk about market themes and what drives prices. If we take a look back at the rally off of the March 2009 lows we will recall that it was all about the dollar, meaning if you could figure out what the dollar was doing you could figure out what equities and commodoties were going to do. The relationship was inverse to each other, we new if the dollar was down that equit...

Everyone is talking about bonds, what does this mean. Do bonds conintue higher? I continually think back the the presentation that Tom Sosnoff gave in June about contrarian thinking. As you all know I tried the short bond trade back in June but I decided that this trade was early. Since then the TLT which is an ETF that tracks 20 year treasury bonds as rallyed quiet a bit. Today it hit a high of 106.61. Although I think the bigger money is going to be made on the short side of this trade, I do realize that this trade long has momentum behind it. But anyways I decided to go back and find the original post that I did on this idea back in June --> Prior TLT Post In the prior post I put a chart together showing the historical for the 20 year rate over the last few years. At its low in 2008 the 20 year rate hit 2.86% today it closed at 3.66%. If you go to the Prior post and scroll down to the comment section you will notice that when I first posted this analysis the 20 year had a 4.05% r...

Forget the first chart, earnings are easily manipulated and most of the earnings beats were and have been driven by cost cutting measures. The real chart that people should be focusing on is the top line. You can see that we may be starting an alarming trend with 3 consecutive quarters of declines in the number of companies beating on the top line. There is only so much you can cut...Eventually you have to grow sales.     Sent to you by Dominic via Google Reader:     Final Earnings Season Stats via Think BIG by Bespoke on 8/19/10 Earnings season ended this past Tuesday with Wal-Mart's report, and below we highlight the final tally for companies that beat both earnings and revenue estimates.  As shown below, 65.8% of companies beat earnings estimates, while 63% beat revenue estimates.  The earnings beat rate was higher than last quarter but lower than the three quarters prior to that.  The revenue beat rate was lower than last quarter, which was weaker th...

RBOB continues to be week and after an the anticipated rally to work off oversold conditions we are seeing it continue its journey lower trading down almost 2% as I write this. On top of that Crude has broke an important support level at $75 after the API reported a build of almost 6 million bbls in the U.S. In yesterdays update I had said that /HO was not setting up as bearishly as /RBOB and still had a strong support level intact around 1.98-2.00 and that it was likely that we saw 2.06 before we saw the 1.98 again, I was wrong here. However /HO support still remains intact at 1.98 and unless this level breaks we should see high prices. /HO I think that support holds at 1.98 and the next target to the upside is 2.02 and then 2.05. /RBOB I hold my bearish stance on /RBOB and it continue to make lower lows on it latest down trend started 8-4-10 and believe it will be testing its May low of 1.88 very soon. If we get some real momentum to the downside in equities it could happen this week...

Today the markets are getting a nice bounce and I want to be short. The SPY is currently trading at 110.06 as I write this post. I purchased 1 Sep $110 put for $3 and will look to add to my short via 113/114 bear call spreads if we get up there. I think that this market is in the process of putting in yet another lower high, see chart below: Series of Lower highs: 1) The high for the year is set at 122.12 made in April. 2) Late April we sa a lower high put in at 121.05 3) We then sold off during the first half of May and put yet another lower high after rallying off of the May lows at 117.5 4) After reaching 117.50 in May the selloff making new lows from the prior selloff which followed by another attempt to rally in June to a new lower high of 113.20. 5) The rally in June was followed by yet another selloff to new lows into July, which July saw yet another impressive rally that continued into August only to test the 113 level several times before selling off again. 6) TBD, I think...

    Sent to you by Dominic via Google Reader:     Chart of the Week: 10-Year Treasury Note Yields From 1990 via VIX and More by Bill Luby on 8/16/10 5The speed with which the yield on the 10-Year U.S. Treasury Note dropped from just over 4.00% in early April to just 2.68% as of Friday's close is astonishing – and points to how the bond market is evaluating the prospects for deflation, recession and a prolonged economic malaise, or worse. This week's chart of the week captures the history of the yield on the benchmark 10-Year U.S. Treasury Note since 1990, when it was hovering in the vicinity of 9%. For additional context I have also included a gray area chart of the S&P 500 index. More often than not, yields on the long bond are positively correlated with equities, but this relationship can decouple, sometimes for an extended period of time. Those who are interested in the history of the yield curve and may wish to experiment with an interactive too...

I have been out of the markets for what seems like an eternity...I think it has really only been about 3-4 weeks, I do not know for sure. I need to stay focused on the new job, but I also need to make some small plays here and there to continue the learning. So as we end the most recent earnings season I think that the market lacks any catalyst to make any new highs this summer and that 113 is the top that has held in June, July, and August. The market still has many issues to work through and as we continue to get feedback from different leading and lagging indicators, we are continually reminded that growth is slowing and that the numbers are not indicative of a normal recovery to end a recession. Slowing growth was to be expected after the initial bursts from all the stimulus and bail out money that hit the markets. I am still in the camp that we go lower in the short term before we go higher. These problems can't and have not been fixed in a year. It took many years to get in t...

This is my first post in sometime and it will not have any actionable trade ideas. But I think it is worth sharing my thoughts. Anyone with an open mind or any interest to be intellectually challenged about the future, and the role that America will play in the global arena, needs to read Fareed Zakaria's book "The post-American World". Fareed does a great job painting a picture of how America has achieved great success politically, militarily, and economically over the past few hundred years. He goes further to explain the role that America has played in shaping the world as we know it today. Since America's great rise the world has become more interconnected then anytime in history. Although America has remained THE SUPERPOWER for many decades, a global world is presenting challenges that will need America to remain nimble and open to change. With rising nations like China and India with over 2.5 Billion people America is faced with new challenges and must acknowled...

Why I'm long term bearish on stocks...