Owner: Option Spot URL:http://optionspot.blogspot.com Join Date: Mon, 07 Apr 2008 17:44:27 -0500 Rating:0 Site Description: Option strategies and trade recommendations Site statistics:Click here
Market analysis 2008-04-07 16:21:00 For a well articulated analysis of current market conditions, read this:Chart Swing Trader-of-market-4708.htmlMore great current market commentary can be found here:1 Option, some interesting graphs:Now and Futures and More discovered this last one. Visit them here:
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Synthetic Stock - inexpensive alternative to buying shares 2008-04-06 10:59:00 The following is a hypothetical example that can be applied to any stock, index, ETF, etc.Suppose you thought that MSFT has found support at 27 and therefore felt that MSFT (currently at 29) had little downside risk but decent potential upside.You could purchase 100 shares
of MSFT for $2,916.Or you could buy an ATM call for $211 while simultaneously selling an ATM put for ($281) for a total capital outlay of negative $70. Keep in mind though that you will be required to have $940 in your account as collateral for the naked put you sold.What this strategy does, is it frees up about $2,000 of capital while your risk/reward profile is the same whether you own the stock or the 'synthetic stock'. This is a perfect example of leverage. Suppose MSFT climbs to $35 anytime before October 2008. Read more:Synthetic
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Week in review 2008-04-04 17:02:00 SPY:YTD down 6.37%Last 5 days up 4.09%QQQQ:YTD down 10.46%Last 5 days up 5.45%DIA:YTD down 4.87% Last 5 days up 3.17%The last 5 days were impressive even though it was all due to one day's performance. Overbought conditions were somewhat relieved Friday; however, not in dramatic fashion. This may have been enough of a breather for the bulls to test resistance at 139-140 next week. That said, this new found level of complacency could be dangerous for those who think there is no more downside risk. Conclusion - short-term is still anyone's guess as evidenced by Wed-Fri trading action (or inaction).Check back tomorrow for some longer-term option strategies.
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Pullback 2008-04-03 21:33:00 The market WILL pullback...just maybe not tomorrow. Personally, I think it will but maybe only with the help of a negative unemployment report as a catalyst - so far overbought conditions haven't been enough. US markets have done little over the last two days so it will be interesting to see how it handles the news tomorrow, positive or negative. It seems like no news can drive this market lower lately but at the same time cannot put together more than a one day rally.
Relative Strength 2008-04-01 15:42:00 A retest of SPY 140 is now obviously a possibility sooner than later; however, the usual suspects need to be considered on days like this. The questions I would be asking are: What does the mid to low volume indicate? How much of today’s gains can be attributed to short covering? What’s the significance of overcoming the 50 day MA (for several of the indices)? Has the market become overbought?And no, I don’t have the answers to all of these. Investors are perhaps either trying to interpret some of the recent news as a turning point, or somehow had priced worse news into the current market price. With news from LEH and UBS, I know, that's hard to believe. As usual I recommend making probability plays by identifying trading ranges and selling deep OTM. Price action is always Read more:Relative
SPY, X, OXY 2008-03-31 17:08:00 SPY: 50 day MA continues to act as resistance, low volume, lots of data coming out this week.Keep an eye on the following - US Steel (X) & Occidental Petroleum (OXY)
Credit Spreads: shop around 2008-03-28 14:55:00 Major indexes continue to be temporarily directionless. Of course that’s good if you’ve been long theta (profit from time decay, i.e. you sold options).Economic data continues to be negative; however, none of it is shocking and the market has priced most of this into current prices. It will take another major event to drive this market into the ground, which these days always seem around the corner.I still feel confident in recommending OTM credit spreads on one of the major index ETFs (SPY, IWM, DIA, QQQQ, etc). Keep in mind that currently you will get better pricing on the downside - due to market bias and volatility skew. If you’re looking for a good probability play, look to sell options with a delta of .07 (although with only 21 DTE (days to expiration) that will be tough).
No title 2008-03-26 18:01:00 First chart - update on GLD. I'm not recommending anything here, just a follow up to yesterday's post.Next up, SPY. We got our expected pullback which was nice. There is likely to be a little more pullback as more negative news should come out tomorrow (GDP, jobless claims, etc.). Just keep in mind that most of this "news" is already expected.Overbought conditions in SPY, IWM, and DIA have all subsided but not so much in QQQQ which has been known to 'lead' the market. Based on that, after hours trading (which is meaningless), and current futures prices (almost meaningless), QQQQ may further the pullback. Let's call SPY 132ish a short-term target.
No title 2008-03-25 16:43:00 I thought this was worth looking at. Even though the points where GLD touch the lower trendline are awfully far apart, yielding them less predictive, I wanted to share this one-year chart since so many people have only been focusing on the extreme short-term plummet from 1000+ to 920. SPY still seems poised for a pullback as it remains a little overbought - as do all major indexes. Plus, the S&P alone is up something like 6% over last several trading sessions so some pullback would be expected. The market in general; however, has been doing an amazing job of brushing off extremely negative news - which is bullish at least for the short-term. Once we get that pullback, I would strongly consider rolling-up or exiting any short positions that are in reach of the underlying. The market
No title 2008-03-24 17:29:00 I would like to point out a couple of charts today and then offer a suggestion for a possible trade adjustment. First, I found it interesting where the market closed today - see the 30 day chart on the left. Clearly broke through 135 but was met with a lot of selling pressure as soon as it saw levels not seen since Feb.Also, check out this site for this weeks upcoming announcements which may have an impact on your trading. final thought: there is nothing that says that the Fed, nor the market need act rationally. If the market is in fact making a turn around, if even temporary, don't fight it - you won't win. Be flexible, admit if you were wrong and fix it. That said, I continue to recommend probability trades. Trading the news, which is what the markets are trading on right now, i
Double Bottom? 2008-03-21 10:48:00 The million dollar question seems to be whether this market has formed a double-bottom. This chart would suggest that maybe it has - if even for the short-term. SPY is once again range bound between 130 and 135 though not likely to be bound for long. The resistance in the 135-137 area is significance. Similarly, there doesn't seem to be a lack of buying interest when the market tests it's recent lows. All breakouts lately seem to be to the downside but are always met with large up days. Volume is slightly more significant during down days for what's it's worth.Ultimately, there are more reasons for this market to go down than up - from the value of the dollar, to jobless claims, to record foreclosures and falling home prices. And of course the Fed lowering rates to a level that got Read more:Bottom
No title 2008-03-19 16:55:00 Found some neat tools at IndexIndicators.com.
zoom out 2008-03-15 08:40:00 I wanted to take a step back and take a look at this 10 year chart - just as a reminder of where we've been and what can happen. No, I don't think we're headed back to 767 any time soon (or ever).Note: the Fed doesn't often bail out individual companies as it did with BSC on Friday.In the case of LTCM (-Term_Capital_Management), for example, I can see the downside of allowing the world to go bankrupt but I don't think it's the Fed's job to make sure that a presumably much smaller company gets bailed out from exhibiting, albeit in hindsight, poor risk management. Is it really a better policy to artificially bolster the market at the expense of inflation and devaluing my currency? Apparently.There is certainly more downside risk than upside but please be careful. Tuesday showed us how vio
No title 2008-03-12 18:30:00 Due to the way the market finished today and IF you're feeling like taking on a little risk - I recommend a bearish strategy, knowing that there is some significant resistance in the upper 130s on SPY. Specifically, I would look at selling some call credit spreads above levels of said resistance. If you're feeling risk averse then wait until after the Fed cuts, although it will likely cost you some premium. I will usually try to spare you my brilliant market commentary - for that I strongly recommend you check out the links on the right side of this page.I will post some meaningful graphs today/tomorrow.
No title 2008-03-11 18:16:00 Even though the markets finished up today, 1option has a great analysis on the action by the Fed. are a few suggestion to the trade recommendation from the weekend. Use the strength in the market to your advantage. For example, the same call credit spread that we would have received $350 for(assume 10 contracts) on Friday, would now net you $580. Just something to keep in mind. If you're feeling less aggressive consider selling something around 144/141. I see no reason to sell the put credit spread quite yet - let's wait to see what the market does this week.
No title 2008-03-08 18:13:00 Current IC recommendation for an index:SPY APR 143/140 - 116/113Reward: $670Risk: $2,330Short call delta: 0.2Short put delta: 0.077Ideally, we would want the delta on the short call to be closer to 0.07 (SPY @ 148) instead of 0.2; however, due to the volatility skew and current downward bias of the market, we would only receive a credit of about $8 for each call spread that far OTM. That said, there is plenty of resistance at 139 so it's not a huge concern. I don't recommend putting on this trade on until after Monday or Tuesday, as the beginning of the week might have some more downside. {See the following} might even prove to be a good idea to enter the put credit spread on Tuesday and wait till later in the week to put on the call spread.
Setting up 2008-04-07 18:16:00 Over the next couple weeks I will looking at some potential setups for longer-term trades. These are not yet recommendations, just stocks I recommend keeping an eye on. Wait until after a week or two of Q1 earnings to see how the markets react to said earnings.First up: OXY, RIMM, USO. All of these are setting up nicely for a move upward (ascending triangle pattern) just as X recently did - see March 31st post. Take a look at it now.Also, like everyone else, I like AAPL but don't touch it until it makes a decent pullback.
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earnings 2008-04-09 21:58:00 If the markets couldn't breakout last week, I think earnings are going to make it that much harder. Of course maybe I'm just being pessimistic and earnings next week will be stellar - in which case hold on to your hat because the market clearly wants to go high. Further, the markets, for the first time in a while, actually had a negative reaction to bad news. If you were waiting for your pullback, you got it, I would just be hesitant to load up on calls in the short-term.Here is an article worth reading:
Longer-term trade suggestions 2008-04-12 08:00:00 Quick follow-up to a trade recommendation. From March 8th: APR 143/140 - 116/113Reward: $670Risk: $2,330I think you'll be fine letting everything expire; however, it would be extremely cheap to remove all remaining risk. For example, if you for some reason felt that there was still upside risk at 140 you could liquidate that spread for all of $50 to completely remove the remaining risk of the stock rallying next week. Again, probably not necessary but you will really regret the one time something unexpected happens and you risk $2k for trying to save 50 bucks. Anyway, it's up to you.Time for another trade suggestion. I hesitate calling this one a recommendation because it's a little more creative and it would freeze up a chunk of capital for a few months. Either way it's a good strat
SPY | VIX | OXY | SMH 2008-04-16 17:36:00 As a follow-up to yesterday, we certainly didn't fill any gaps - which was somewhat predictable since the gap was above and beyond yesterday's trading range. Follow this link if you don't remember: -types-of-morning-openings/That of course isn't real helpful to those who were holding positions overnight and got burned from the gap up - but unless you liquidate all of your positions every night there's not much that you can do about it. About the only thing you can do is play the odds that, after you've analyzed the gap, realize it's not likely to fill and adjust/repair your position accordingly.
Markets poised to gap up tomorrow morning 2008-04-15 15:59:00 The markets seem poised to gap up tomorrow
morning. Let's look at some of the reasons why.First of all, INTC has been getting a lot of attention due to the scope of their business, their size, being a DOW component, etc. Intel is of course not the only company reporting, but as with GE, you wouldn't know it. For now, Intel will set the tone until the next whipping boy (GOOG, JPM, MER, LEH, etc.) reports.Outcome: INTC met their numbers and slightly improved their outlook. In after-hours trading INTC jumped 8.5%. Is that excessive? Absolutely - but keep in mind it's after-hours trading. It may however still have some important implications on other stocks. It may indicate that investors are allowing stocks to trade at a discount due to a certain level of uncertainty (due to earnings Read more:Markets
SPY | FLR | MMM | RIMM 2008-04-20 10:11:00 Friday has left us overbought; however, a breakout scenario still seems imminent.If (SPY) can in fact overcome 140 (should earnings continue to meet lowered expectations) 144 may be much tougher. To the right is a five year chart that helps illustrate why - basically 144 represents a key breach in an otherwise seemingly healthy 5 year trend.Here is achart showingthe number ofS&P stocks tradingabove their 200 daymoving average.Below are some more stocks worth watching.Fluor (FLR) - nice reverse head & shoulders pattern.If this looks like a bullish opportunity to you, consider debit spreads or calls with an expiration of JUL or OCT and an initial price target of 170 (all-time high set back on Nov 26, 2007).3M (MMM) - broke out to the upside and closed above 200 day moving average.
FXI | MON | RIMM | POT 2008-04-23 20:28:00 The following have been getting a lot of mention, forming some nice setups, and should be on your watchlist:FXI - Huge breakout on big volume. FXI got as high as 160.90 before ending the day 157.61. Still overbought so be patient. Look for a small pullback and look to go long.MON - Perhaps taking a breather...before rocketing past 140...RIMM - has been drifting upward for a while but hasn't been able to breakout yet. It has a very low ADX reading, implying a lack of a trend. It still seems like it's formed a nice base and may be preparing for another leg up.POT - Big red candle. I don't see any reversal in sight so maybe it will present an opportunity to those of us who missed the last 20 pullbacks.Keep in mind these are just setups and not your signal for entry. You should have (or
Ultra long/short possibilities 2008-04-23 16:36:00 Over the last 5 trading days (including Friday's big up day) the S&P is up 1.12% - it is doing a good job in hanging onto the bulk of last Friday's gains.Zooming out, the S&P is still trading in the 132-139 range. I am trying to stay poised for when the market does breakout – one way or another. I still believe that there is a bias to the upside. I base this on the market’s persistent neutral to positive reactions to negative news. One of the strategies I have been considering has been to buy ultra long ETF options on either the Nasdaq (QLD) or S&P (SSO). Basically the SSO is designed to double the returns of the S&P 500 and the QLD is designed to double the returns of the Nasdaq.So if you’re really bullish on the broad market, for example, and feel a breako Read more:Ultra
No title 2008-04-25 06:00:00 Keep Goldman Sachs (GS) on your watchlist - it made a rather unexpected yet significant move Thursday (as did much of the XLF). It even ended the day on stronger volume than it started with, which even though now overbought, may still have some steam left for Friday. Either way, I don't recommend chasing it but as I stated several weeks ago, this is one that I strongly recommend long-term. Consider picking up some of the OCT or JAN 09 calls. If you want to finance some of that expense (at risk of limiting your upside) consider debit spreads instead of the outright option purchases. In the near future I will post some techniques for identifying when you're better off doing one vs the other.
FXI | MON | POT | SPY 2008-04-24 17:45:00 What a difference a day can make. It's already time to revisit some recently mentioned setups.FXI: Overbought. Overall, nice looking chart for the longer-term.MON: Oversold. Monsanto is among a list of stocks that got hammered after reporting good numbers and raising their outlook. All else equal, it is simply presenting an opportunity.POT: Another example of a stock that just got hammered after reporting good numbers and raising their outlook. The difference here is the enormous amount of volume that traded today - proceed with caution.SPY: I thought the bulls were going to do it today but the 139/140 resistance continues to hold. I think it will break sooner than later, especially if XLF can string together another couple days like it did today....
Outright Options vs Debit Spreads 2008-04-26 12:54:00 Selecting a strategy for that next option trade can be a difficult choice. This example will focus on Semiconductor HOLDRS Trust (SMH). I am bullish on SMH in the long-term and I'm trying to decide whether I want to buy outright calls or do a debit spread.Start with the chart. I think SMH bottomed on Jan 22 and is grinding its way back up. If it breaches the trendline I have drawn I will abandon the trade and cut my losses; otherwise, I think it will keep following this trend upward. I think it has the potential to retest 35.50.Expiration. Since I'm leaning toward buying options on SMH I want to give myself a few extra months. I'm picking Nov 08 as my time frame even though I have no intention of holding onto the calls until then. ITM, ATM, OTM. This again has a lot to do with you Read more:Options
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Sector valuation 2008-04-25 16:00:00 Bespoke has provided some great graphs to help illustrate whether stocks are 'cheap' down at these current levels....Valuation techniques should differ depending on what sector/industry you’re analyzing. For example, with utility stocks it might be appropriate to use a price to book ratio; whereas using the same valuation technique on tech stocks would not make any sense.Price to earnings is a generally accepted valuation technique that when analyzing sectors on a whole, can be quite useful. Bespoke has done just that in the following analysis:-sector-pe-ra.html
See where others are putting their dollars 2008-04-25 10:00:00 This list shows which stocks have the highest dollar-volume. Roughly speaking, these are the stocks on which people spent the most dollars
over the past two weeks.The formula for this list is (yesterday's close) * (the average daily volume for the past two weeks). The stocks with the highest values are listed at the top.If you like this list and would like to see more like it, please visit TradeIdeas.com
Ratio Spread 2008-04-01 16:51:00 Suppose that you thought by July, (AAPL) would be trading at a maximum of 195 but didn't want to take on any downside risk in case Armageddon is just around the corner.An alternative to buying calls, for example, would be a ratio spread. This is a strategy where you think the stock (in this case AAPL) will go up x% but not y%, where x is maybe 30% and y is 50%. Click on the graph to the right. I have identified a possible price target for AAPL by July. In this example, I think AAPL has the potential to go to the 180-200 range but not above the 210 range.Some advantages include no outlay of capital and the potential to profit from a move up, sideways or down.Disadvantages include sacrificing some potential upside, having to tie up a chunk of capital, and getting burned if the stock were to Read more:Ratio
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