Forex Is Crazy

With Volatility so low and the attitude of complaceny in the market I think that the risk is to the downside. So I am willing to take a low risk high reward play. I bought 10 Jan '11 $54 puts @ $0.66. There is 22 days until expiration, but I only plan to hold these til next week at the latest.

On Monday 12/27/10 I sold the JAN4 NG 4.00 strike put for .153, max gain = $1530. We've been going straight up since then and with 27 days still remaining until expiration I'm looking to possibly close this out early for 50% of the maximum gain. I would look to re-enter this same trade or possibly get long the underlying if we pull back towards 4.00. Update 12/30/10: I had a day order in to close at .076 and it was triggered pre-pit trading hours this morning. So I picked up 50% of the possible gain in 3 days = $770. There are still 27 days left until expiration so I will be looking to re-enter this if given an opportunity. 

What a slow week and a half it has been. The major indices continue to make annual highs a few points at a time, which seems like daily. The volume is gone from the market but so is the fear, as measured by the VIX or volatility index. The same is true for oil, after breaking out above $90/bbl the daily range has gotten very narrow and with that the volatility has fallen off a cliff. First lets take a look at the chart for crude: First lets take notice of the HV, which is clocking in at 10.32, which represents at least a two year low. We have rallied some 25% off off the June lows and the fear has dissapeared. Looking at both the RSI and the bollinger bands we are either in overbought territory or we are almost there. The bollinger bands are beggining to narror and turn towards each other, indicating a larger move to come in the near future. The overbought/oversold indicators say the next move should be lower, but the 5 and 10 day moving average still indicate that the trend is higher ...

I closed out this long call trade today for a -$60 loss. My stated exit point was on a close below the channel uptrend. I might have jumped the gun on this as we still have 15 minutes left in the trading day, but I don't like that it's violated the channel intra-day four times since I put the trade one, was rejected at resistance since I put the trade on, and looks like it might be consolidating now. So pretty simple, I'm out.

So here are my charts from yesterday and why I was looking to get long NG. We have a series of higher lows after a long 8-month sell off. Considering it is winter, this asset can't go to zero, and I'm comfortable with the margin requirement for taking out a new low, I favored getting long here. But I didn't like the overhead resistance line. Sometime in the next two days one of these trends has to break. So I chose the short put rather than just getting long.

What a wild ride. There must have been a large short position out there, or maybe somebody willing to take delivery was bottom feeding and snatching up at this price. Look at the volume and price action in the last 30 minutes of pit trading. I was happy to take a break even and 30 minutes later there was an $800 profit. It could just have easily moved that fast against me so I'm glad to break even here. I did end up selling the FEB 4.000 put option for .153 right as this move occurred potential good timing there. The FEB chart saw the same up move as the JAN so maybe that blows my earlier theory. I haven't been trading this asset class long enough to have an informed opinion. Now check out this classic technical bounce in the chart below. I had the blue line for the FEB contract drawn before today's action. We bounced exactly on it. I was looking to sell a put in to this move and I did. That was a more conservative approach but a simple long at that support line would have ...

I closed this covered call out for a scratch trade. After commissions it's going to be + $2. The option expires in 20 minutes and the underlying long has to be closed out or rolled by tomorrow at 11:30am PST so I just took the break even here to be done with it. A half hour ago I was facing a -$400 loss so I'll take the break even. I am going to keep an eye on the FEB contract for an entry point near 4.000. I might even sell the 4.000 put.

I'm manually closing out my long calls on PFE about .04 shy of the GTC I had placed. Classic TA worked on this trade and with it approaching resistance and 29 days left until expiration I'm content to book this profit and look for another entry point. Trade Update 1/5/11: I wasn't watching the market on Friday 12/31 so I missed a great re-entry point for this trade. Monday morning was too late as we gapped open and I didn't want to chase it. I don't like sitting in front of the screen for 7 hours a day, but this is twice in the last week that not doing so has cost me money .

The old saying is the "the trend is your friend". Most technicians live by this saying and would advise others to always trade in the direction of the trend. But how do you define the direction of the trend to fit your trading time frame? The first thing you can do is look at a chart and based on what you see decide if the underlying is trending up, down, or sideways. You can do this on any time frame. Sometimes it is hard to tell, so people will through moving averages on a chart to help better identify the trend. Some of the most popular are the 50 and 200 day moving averages. In technical terms if the 50 day MA is trading above the 200 day MA, the underlying is said to be in an uptrend and vice a versa. This is great if you are a longer term trader, but what can you use for the active trader who trades week to week, or month to month? I personally know that I am a short term trader and I need a way to identify the trend this week, not this year. So I started playing with d...

From one of the blogs that I follow.     Sent to you by Dominic via Google Reader:     Commodity Roundup - Markets on your Radar via Commodity Trader by Mathew Bradbard on 12/22/10 Image via Wikipedia MB Wealth Corp. is not responsible and does not endorse anything outside of the content of this article authored by Matthew Bradbard President of MB Wealth. As most followers recognize, I break the commodity markets into seven sectors: financials which include the indices and debt markets, energies, currencies, livestock, metals, grains and finally the softs. So let's examine sector by sector what should be on your radar as we conclude one trading year and a fresh year of opportunity is upon us. Financials While the first part of the year brought uncertainty and perhaps too much pessimism after a bottom formed in the summer indices have appreciated lifting the Dow and S&P approximately 25%. From here, we think prices have gotten ahead of themselves an...

I started today with just one position but ended up with seven. In addition to new trades in bond and nat gas futures I also found four equity plays I liked. I kind of started today with a blank canvas and had a number of ideas I found over the weekend I was interested in. A few of them turned out to no longer be available during the trading day today but these four I played. DLTR This trend is my friend until broken. Even though I feel the market in general is topping or consolidating before future moves higher, there are always individual names that can continue their trend regardless of overall market direction. I hope this is one. In addition to the technical trend, IV is at a 6-month low and earnings are already out of the way. I like the risk/reward of getting long here. I bought the JAN11 50 ITM calls for 6.90 with the stock at 56.70, so paid just .20 time premium. If we break that channel to the downside I would expect IV to increase which would lessen my losses. I would lo...

ZB was up to 122'00 earlier today and that represented a 3'00 move off the bottom from just three trading days ago.  Granted we had reached over sold levels and the move down the previous week was also extremely large. However, I just don't see a sustained move up in bond prices and I'm willing to get short if it does, so I sold the JAN11 123 for a little over a point. I would gladly get short at that level anyway so what this does for me is gives me a little pay day in case we don't actually get up there and thus giving me a chance to get short the underlying. I had some good fortune with timing on this as we ended up closing lower on the day and then going even lower in after hours. Since there is still 32 days until this option expires and as of the close I captured over 25% of the possible profit, any further move down will make this a candidate for early exit with an eye on shorting another option on future price increases. Update 12/29/10: My buy to cover on t...

NG closed near 4.00 on Friday and over the weekend I was looking at the charts and thought it was a good entry point for a long position as it looks like we are seeing higher highs and higher lows. Also, it looks like there is a little buying as we are coming off of near over sold conditions. I used a covered call because it expires in just 7 days and I liked the total return on this trade, assuming it stays above 4.00. I ended up getting lucky with timing and if we open tomorrow any higher I might just take this trade off. I can capture more than 50% of the possible gain in one trading day, we'll see. I  might also consider rolling this to February if we close under 4.00 as right now the contango is only a few points.

I had a good December due to a two week aggressive short campaign on ZB. I needed a good DEC because I lost money trading the previous two months. Excluding a large realized gain in NOV that had been accumulating since MAR09, the rest of Q4 only adds up to about $3,500 or $1166 per month. My monthly target is a minimum of $2000 so by that measure Q4 was not a success. However, on a longer term basis my realized monthly gain is just above $2800. Below are my results for DEC10 and updated historical records.

I took advantage of the no commission on .05 or less at TOS and closed out some short $67.50 puts on KMP today which leaves me with a 100% cash position. This wasn't necessarily by design but rather circumstance. I captured 90% of the potential on this trade so felt comfortable closing it out and looking for reentry for JAN11 on a pull back and/or hopefully some higher IV. Right now with VIX and IV relatively low all around and six weeks to go until JAN11 expiration I'm content to sit back and wait for premium selling opportunities.

Although I am not able to blog about every trade that I make due to the lack of time...I do from time to time have some time to share what I am doing. The energy complex has seen a pretty nice move since late August when the fed started talking about a second quantitative easing package. This is the third time this year that crude is trading at over $80/bbl, the past few times crude has tried to sustain any rally above $80/bbl it has failed. But this time if seems well supported at $80/bbl and crude has since take out the years highs, to put up numbers we have not seen in over two years. There is definetly momentum behine the oil trade and in the medium term I think crude has a date with $100, but short term it seems overdone and due for a pullback. So how am I trading this? 1) As per the chart below Oil is looking overbought by way of the bollinger bands, and is almost there on the 14-day RSI. Although it still may have a bit more to climb I think we are approaching a $2-$5 selloff in...

I had sold short DEC10 19 Puts on CSCO on 11/17. Since then it has sold off a little and more alarmingly has not participated at all in the large overall market move the past two days. So I'm looking to exit this trade at the open on Friday for a small gain.

    Sent to you by Dominic via Google Reader:     Do You Really Understand How to Use Market Sentiment and Herd Mentality in Your Trading via Crude Oil Trader by Ray C. Parrish on 12/2/10 We don't know of any trader better suited to teach us how to take advantage of market psychology then Chris Vermeulen of The Gold and Oil Guy.Com . In this report Chris is going to teach you how to read market sentiment so you can day trade and swing trade consistently to earn 3-5% per month trading ETFs. I remember always hearing the pro's say "if you want to make money, you need to trade against the herd (masses)". This sounds easy but just how do we go about doing that? I am about to show you… In short, you must start looking at the market completely backwards. I focus on buying into heavy volume sell offs (panic) and selling position into heavy volume breakouts (greed). This was a very tough transition for me to make and its best to paper trade it for while until you are...