Forex Is Crazy

Staying true to yesterday's post IN THE MONEY TRADES: Managing ZB Position and closed out ZB today sooner than originally planned. I'm going to lighten my max exposure to 3 contracts from a previous of 5 until I see how things shake out. I'm willing to leave some potential profits on the board in exchange for peace of mind. I just entered with three shorts on Friday and by this morning I had already found myself watching the 1-minute bar charts where as I usually just watch the daily. I also set my alarm on Sunday to start watching at 3pm PST when the futures markets opened. That tells me I was too heavily invested in this trade from a psychological standpoint. So I'm happy to take some profits and lighten the risk exposure as well. I'm still short a FEB 122 Call and have orders to short the futures at 121'16 and 122. Update: Literally before I could even finish posting this trade my last order was filled to cover at 120'16. This also means I left $1,000 on...

The events in the Middle East are potentially a game changer for trading ZB. For the last six weeks I've been methodically shorting at resistance and doing quite well. But this 119-122 consolidation range we've been in is the result of a sell off after bonds entered a short-term bubble. That bubble was predicated on fears of a double dip recession and financial institution instability in Europe which turned out to be short lived. Though I've been expecting to stay range bound with an eventual leg down, it is possible that new outside macro inputs will trump the technical picture. I have stayed true to my plan and scaled in to a maximum short position of 5 contracts  http://inthemoneytrades.blogspot.com/2011/01/scaling-in-to-zb-shorts-as-planned.html#links . Below is the risk profile associated with what I previously believed was my worse case scenario. However, that was based on a continued consolidation range and slowly recovering world economies. If this Middle East thing...

On Tuesday 1/25/11 near the close of trading I sold short (10) FEB 19 Puts for .40. Cost average/risk is $18.60. That's over 2% return (.40/18.60) for less than a month, and I have 9% downside protection (1.86/20.46) to my break even point. Unfortunately this wasn't on my radar a few days ago. I could have entered at essentially the same spot near $20.46 but with 3 more days theta and a higher IV. I'm still comfortable with my entry point, but being around at the right time has advantages. This is a name I've played in the past and feel comfortably taking a long position should it be put to me at $19. Earnings are tomorrow after the bell so there is risk associated with that. However, IV is pretty high at the moment near 50. I don't care if earnings are terrible and the stock plunges as I'm willing to own. The worse case scenario is the stock does plunge, IV collapses, and there aren't any attractive covered call scenarios available for MAR expiration. That ...

Today's FED announcement was just as planned, meaning rates are left unchanged and there wasn't any significant new language. Yet the bond market went nuts for 30 minutes after and traded in a full 1'00 range. I took the opportunity to close out the two short positions I put on yesterday. I captured 23/33 = 70% of the premium on the FEB1 Weekly in just 24 hours, with 9 days left until expiration that had to get closed out. I don't have the patience to wait 9 more days for another 10 ticks. And the short futures at 121'00 was automatically closed at 120'00 as that is where my GTC was set. As you can see from the picture below I have my orders set to scale back in to shorts at 121'00, 121'16, and 122'00. I might even double up on the 122'00 depending on what the action looks like at that time. I'm currently short one FEB 122 Call and still looking to scale in to a maximum short position of 5 contracts. Total take for these two trades is $1350.

This morning I awoke to find my standing order to short ZB at 121'00 was triggered in the early hours. Unfortunately as the picture shows, my order to cover at 120'00 missed by two ticks. We then rallied almost two straight points in a few hours. That is a huge intra-day move for bonds. I am glad to see intra-day volatility still alive and I'm scaling in to a max short position of 5 contracts as planned. Beginning this week there are now weekly options available on ZB, so I dabbled in this a bit and sold the FEB1 123 strike call for '330 ($515). I've got a good-til-cancel order in to short another 2 contracts near the top of the trading range at 122'00 and if triggered this would leave me with short exposure to 5 contracts. I'm prepared to add to the short position if we break the range to the upside, but I would wait a while to see how it acts above 122'00, and what has changed in the macro environment to make the long bond yield head towards 4% again. ...

For anybody following my trades the last month in ZB this trade might seem counterintuitive as yesterday I shorted a call at the lower end of the 119-122 trading range. Here is my thinking: Shorting ZB for the last two months has been easy, nothing this good lasts forever and I've missed the last two entry points when I was out of town and chose to turn the markets off for a few days. The intra-day volatility has been amazing the last few weeks. Just using basic technical analysis and shorting near 122 has worked flawlessly and I've been paid several times http://bit.ly/fwdDFk ,  http://bit.ly/e3F3DH . Again, nothing is that easy and nothing this good lasts long. I'm concerned that volatility will dissipate, thus you have to wait longer to find entry points. Or worse, this thing breaks to the downside before it goes back up to test 122 and I get caught not having any short exposure. Since I'm willing to short up to 5 contracts at 122, I'm getting some short exposure...

So from a bottom line dollar standpoint alone I'm happy with the results this month. But I made a few mistakes and gambled and lost a few times as well. What I'm actually most proud of is the one loss this month because I stuck to my trading rule there and got out when my exit point was triggered. This trade would have ended up losing ($1,000) had I stayed in until expiration hoping that it would somehow work back to my favor, which is something I would have done in years past. What doesn't show up on the P/L is missed opportunities to re-enter the PFE long calls, and a short on ZB that both would have been winning trades. I also closed out two trades (NG and KMP short puts) early hoping to get a chance to re-enter but they didn't materialize. Total profit left on the table for those two early exits is about $860, missed trade opportunities total is about $1250. There is rarely such thing as a perfect month as I can always find something to get better at, and I just as ...

It has been a while since I have blogged about a position that I was taking at work. But today I find myself with a little extra time to blog about a trade that I noticed today that looked good to me on a contrarion play. With the Cold weather on the East coast /HO has been very strong and with the relative weakness in crude the Heating Oil Crack spread (HO contract *42 - CL Contract) has in the last two weeks run up from 14 to as high as $22.50 this afternoon. Looking at the chart below the move looks very parabolic and this is confirmed by the 9 day RSI with a reading of 87.31: Now the above chart does not explain the whole picture, we should also look at this on a seasonal basis historically. So the next chart below is shows the time frame from Jan to Feb: In the above chart you are looking at how this crack has performed on a seasonal basis for the past 4 years. The dotted blue line is the average of all the years displayed, and the black line is the current year of this cracks...

I've been using the charts to short ZB since November and so far doing fantastic with no losing trades. Today gave me some clarification on the chart patterns I've been watching so I wanted to share my thinking for those that are following. I was correct back in mid December that the closing lows below 119 were the end of the downward channel that started at the highs near 135. I thought we were in for some sideways action and have been placing my bets accordingly. After a few days it appeared we were in a rough range from 119-122. But without a lot of data points I feel charting is very subjective. Until it plays itself out I wasn't sure if we were truly in a sideways consolidation range or if we were looking at a rising wedge. The gold colored line in the chart below was my possible rising wedge to watch. Since this technical pattern tends to resolve itself to the upside, I have been hesitant with my short position size. It's also why I was using short calls at times ...

This is a late post as I was out of town and didn't have Internet access when the trade was closed out. On Wednesday 1/12/11 I closed my short JAN 123 ZB Calls for '080 each. Entry points were 1'140 and 0'510, cost average of 1'010, profit is $1758. I closed these out for a combination of reasons. The first is I locked in 89% of the profit with 10 days left until expiration so the remaining risk (unlimited) wasn't worth the potential remaining reward ($250). The second is that if I've been right about this being in a consolidation range as I previously posted here  http://inthemoneytrades.blogspot.com/2011/01/bond-volatility-still-paying-off.html#links , then it makes more sense to short the underlying rather than wait for these calls to completely expire. The gains I locked in today took 13 and 24 days respectively to accrue on the two short Calls. Had I shorted the underlying contract instead, those gains could have been had in hours as my timing on both t...

I was short the JAN 67.50 puts at .70 and just closed them out for .10. I could lock in (.60/.70) = 85% of the profits with two weeks left until expiration so I felt this was the prudent move to make. Besides locking in profits and taking 100% of future risk off the books, I'm hoping for a pull back within this 3-month trading range so I can sell FEB 67.50 puts. If this happens its essentially a roll of the trade. Current price for FEB 67.50 puts is roughly .50. So we'll see if I get a chance for a better entry sometime in the next two weeks before JAN expiration.

Last week I posted about buying some puts on the QQQQ. We got a small downmove on the day before the holiday weeked, in which I took the opportunity to sell half of the 10 puts that I bought and sell 5 OTM puts to turn the position into a putspread to mitigate the effects of theta over the weekend. When I came into this week I no longer like the prospects of the 54/53 put spread finishing in the money and decided to close out the rest of the position for a small net loss of $20. But the more I look at the chart the more I think something has got to give. The RSI is overbought, the Bollinger bands are screaming overbought and we are heading into an important economic report tommorrow. The old saying goes buy the rumer sell the news. I think everyone is expecting the report to be a blow out.  I really don't care what the report says, I just think the price action is overdone to the upside and tommorow might give traders an excuse to sell off into whatever news is released tomorrow. W...

After covering my short trade at my target zone on Monday, I was a bit late to short again at the upper end of resistance near 122'00 just a few hours later. I ended up shorting again anyway at 121'20. But I was a bit uncomfortable with this for two reasons. The first is that I was upset with myself for missing my desired entry point, the second was this was beginning to feel too easy. I was afraid I was going back to the well too often and was about to get bit. Shorting bonds the last two months has been a great ride. So I decided to shorten my exit point a bit and stay small with only one contract because I wanted to see how the charts shake out the next few days.  My theory of being in a consolidation range has been accurate the last few weeks, but today was the day we should find out if the down trending channel was still intact. Very interesting to see bonds rally all through the electronic session up to resistance only to see a large seller unload once the pits open...

Welcome to 2011. Happy New Year to everyone.  The Good So I haven't had a lot of time to update and post to the blog lately with the holidays and life in general as I have twins on the way in May so life has been a little busy to say the least. To be honest the trades I've been doing aren't for the faint of heart and thus why I haven't been recommending them. I've continued to trade long the metals(SLV, GDX and other smaller miners) selling short calls along the way while I wait for the inevitable selloff that is sure to come as soon as every retail investor finishes throwing their money into the market in January. Everywhere I turn I hear gold and silver and pawn shops with the name in it. Do I believe we're at a top in the metals? Short term yes.....long term no. The Bad I have been very vocal in my skepticism of this market rally that we've been in for now WAAAAAY too long. As they say you can't fight the tape so you have to hold your nose and buy but...

Update to my NG trade. I am so grateful I wussed out and closed my short put in hopes of putting it back on again on a pullback. Looks like that worked out wonderfully. Although TA is a great tool, do not get comfortable and rely on it. I don't want to say I made a mistake on this trade because clearly that would be a retrospective comment, but I do want to point out that TA just like anything else, is only an input tool and not a system in of itself. If it were we would all just write a program to trade accordingly, life and trading isn't that easy. The truth is that basic TA has been working wonderfully for me on a few different asset classes the last two months over numerous trades. This time it didn't work but the ratio of hits vs misses is strongly in my favor so I'm going to stick with it as an input and deal with the minor frustration when it doesn't work.

I was kind of unpleasantly surprised to see that a GTC order to short ZB at 122'00 was hit in the closing minutes of trading last Friday. Even though from a technical analysis point of entry I was OK with it obviously, as that is where I had set my order, I was uncomfortable with why bonds ran so big on the day when equities were flat and I couldn't find any news to justify the move. So this was a case of a GTC order benefiting me as if I were watching live I don't know that I would have pulled the trigger. So over the weekend I reached another point of psychological trader breakthrough. I've been playing ZB short for a few months now and doing well, but I've been a little conservative and targeting exit points based on a desired dollar gain and not the chart. This makes littles sense as I was using the charts for entry points but ignoring them for exit points. So looking at the chart below I made a note to myself that 120'16 looked like the logical exit point, ...