I AM ALIVE!!!

It has been a couple of weeks since my last post. If you look through the feed you will likely notice that my last post was on May 23rd. I really can't believe that it has been almost three weeks. Never fear I am alive and well and have continued to trade the markets. But over the last few weeks I have been pretty busy with work in both my day job and in my side pursuits. More recently I have been teaching myself programming skills. Before we break off into market analysis I will leave you with this quote I live by from Jim Rohn: "A formal education will make you a living, but self education will make you a fortune".

My last post was the first of what would be the first corrective move to the downside after hitting all time highs at around 1,685 on the /ES.

Chart from May 23rd

And 3 weeks later...

Looking at the chart above you can see that the markets pulled back about 90 points and have found support around 1,597 on the /ES. During this time we finally got a pull back and a awesome move lower in JNJ:

Remember JNJ had an incredible run of 19 strait weeks to the upside without a single down move. Although the above chart is not a weekly chart, you can see that JNJ topped out a penny shy of $90 and hit a low at around $82.50 11 days later. Only to remind us that there is cycality in the market...meaning that the market goes up AND it also goes down.

As public as I have made it, it is no secret that I have been net short the market place. But over the recent pull back I have been selling puts in NLY which finally showed some life today. I am short 20 put contracts that have an equivalent delta of about 30 SPY. If you look back in the archive you will see numerous posts about my fascination of NLY for its juicy dividend. I made really good money until exiting the trade in March and have been since been patient to build up a healthy position again. My effective long price puts me long the stock around $13.30/share. The current yield at this price is around 13.5%. There is ton's of chatter about rising interest rates and reform to fannie mae and freddie mac....I don't care!

I have continued to play in and out of VXX as a compliment to my short position in the /ES. I have mostly been short puts to get long volatility since my position in /ES is short premium which by its very nature is short premium. So although intrinsically I am up a little money...the expansion in volatility that has happened over the past few weeks doesn't show me up as much as I would be at expiration. But that is fine with me, I am currently getting paid $33/day in theta in my aggregated position. My profit range on this position is 1,537 to 1,645. I think the recent high at 1,685 has given us something to trade against to the upside.

Getting back to VXX...with a pop volatility I covered the latest short puts I had and turned around and sold out the Aug '13 $21/strangle for $5.15.

Good Luck Trading!

In The Money Trades

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Anatomy Of A Trade

Last week for all of you who are following I finally traded my first futures option on the /ES. To bring everyone up to speed before I go further let me remind you what I did last week. It was last Sunday night (4-21-13). The /ES was up 9 points in the Sunday session and since it was the only thing that was tradeable I was interested in selling a call to serve two purposes:

1) Scalp 4-5 points on a pull in as we rolled into the normal US trading session. I thought there was a chance that the futures would reverse and allow me to possibly scalp some profits. I do need to add that we were within 1/2 a futures point from getting filled on the scalp.

2) To initiate a short position on the /ES at all time highs. Since I sold the short 1,555 call for 32.5 points it would get me an effective short of 1,587.5 only about 4 points away from all time highs.

The markets irrational move to the upside has continued as investors poor money into anything with some possibility of a return of more than they can earn in money markets or bonds...which is much closer to zero. As I write this the /ES is currently trading at 1,586.50. But lets update you on what I have done with this trade as it has moved against me.

First let me tell you that the above risk profile shows you the aggregated position that I now have in /ES. As convicted as I am in this trade I have to realize that markets can do crazy things and I am not willing to be a hero as I am always trading with longevity in my mind. So as my break even on the short call began to become in danger I had to do the prudent thing and define my risk to the upside. So lets outline the different adjustments I have made to this position:

1) I sold 1,415 put @ $4.10

2) I sold 1,550/1,530 putspread @ $4.50

3) I bought the 1,615 call to spread off my risk to the upside @ $4.35

All in all you will see that on a net basis I have collected $36.75 in option premium. Now look we have 53 days left until the expiration of these options. Looking at the risk profile you can see that I have a peak in profitability at the 1,550 strike price. So other relevant stats:

Downside Breakeven: $1,398.50
Upside     Breakeven: $1,592.00
Profit rage: 1,398 to 1,592 = 194 point profit range (with short bias)

1. Profit in 1,415 - 1,530 range = $837.50

Margin Requirement: $2,873 (risk capital)
Max Gain: $1,837.50 (at $1,550 /es, potential return on capital of 64%)
Max Upside Loss: ($1,162.50)

I know I have put out a lot of numbers above, but these are the things I am watching. You will also notice that I left my risk to the downside open as we are so far away that I am not concerned with the downside at the moment. If we move 175 points, I may look at protecting the downside...but that is not likely in my opinion.

Until next time I continue with my bias to the downside. The risk/reward at all time highs favors playing the market with a short bias. I will continue to update you on this position and what I do with it.

Good Luck Trading!

In The Money Trades

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Trading Commissions...The only cost to trade!

The barrier to entry to trade these days is so low with firms providing data and trading platforms for free to all customers. There is no reason why any retail trader should be paying to use a platform or receive market data feeds. For online brokers, this is now a cost of doing business.

The only cost you have as a retail trader is commissions. And even these have been commoditised over the last decade. Now that is not to say that brokers are not going to try to squeeze a higher commission rate to the uninformed trader. I have talked to a lot of new traders lately on the topic of commissions and the fact that they are negotiable.

As many of you know reading this blog, TD Ameritrade is our preferred and recommended broker for all traders. I have been with Interactive Brokers and TradeMonster and it does not even come close to what the ThinkOrSwim platform offers. With that said I want to share a few insights on negotiating your commissions.

After helping a few traders get their commission rates lower of the the last few years I have found the sweet spot to where TD Ameritrade is willing to start a new trader until they build up some account activity.

1) $1.50/contract for option trades (no minimums)
2) $5min or  $0.01/share for stock trades ($5 for 100 shares, $6 for 200, etc)

If you are opening up a new account with TD Ameritrade you get your first 60 days of trading for free, so I would wait to negotiate the commission rate until after your free trades are up.

Over time as you become more active you can go back to the negotiating table to get your commission rate lowered on the option trades and have them remove the $5 minimum for the stock trades. I personally have a $1 min or $0.01/share.

Good Luck Trading!

In The Money Trades




And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Stay Small, Stay Out of Trouble

To expand on my post from yesterday about patience. I want to talk about a very important element that allows patience in a position, and that is staying small. If you trade too big RELATIVE to your personal account size, you are likely to be forced to exit the trade before the trade works in your favor. Many trades myself included have all experienced the pains of trading a position way too large given our account size.

There is this predisposition out there that the only way you are going to make money in the financial markets is if you are trading 10 lots of options and 1000 shares of stock at the time. This is not the case, and if this is your mentality you will likely ensure yourself trouble. We have all read the stories of traders blowing up their account.

I personally think a good rule of thumb is to not risk more than 5% of your account value on any one position.

Good Luck Trading!

In The Money Trades


And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Trading Options on /ES for the first time

So Jason and I have talked about trading /ES for so long...and one of the big benefits that I have thought ever since he started trading /ES is the extra trading time that comes with trading futures contracts. For those of you that don't know, the futures markets only shut down for 45 min/day during the week and is closed on Friday through Sunday evening before it opens back up. There are a few times when I see markets trade on a Sunday afternoon that I would like to put some kind of position on going into the open on Monday. Well I finally executed a trade in options on /ES.

It feels like the steam has been lost to the upside in the /ES for sometime and I have a short to neutral bias. So with the /ES up 8-9 points last night (at high) I decided to sell a call for almost 32 points (was ATM option). I am looking to make about 4-5 points on this option. But I sold it with the mindset that I would be okay being short at my breakeven price which puts us at the highs for the markets around 1590. Otherwise I am happy to make the 4-5 points. So I really look at this as two possible positions:

1) A scalp for a nice overnight trade or a swing trade.
2) A nice short entry at all time highs...would rather be a seller than a buyer at these levels.

I do have to admit however that I was apprehensive to execute my trade last night, not because I was not comfortable with my trade idea, but because it was the first time I have traded this product. With that said I did not sell the top, we were up only about 6 points when I executed my trade.

I have a limit order in to make about 4 points on this short call in TOS and will let that work this morning. A few more points lower on the /ES and it will get filled. It feels likely that it will get filled this morning based on how its trading (down 3 points as I write).

The only caveat that I would give to traders venturing into a new product is to make sure you understand the product and what price movement means to your P&L. I had to refresh my memory that each point in the /ES is +/-$50.

Good Luck Trading!

In The Money Trades




And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Retail Trader with $105MM in profit

I didn't get a chance to see this interview when it first aired, but all I can say is WOW! The funny thing is the comment that Tom makes about the fact that professional SPX pit traders don't even know this lady exists and wouldn't believe that there is a retail trader that has made this much money. The video is about 52 minutes, but is really interesting and worth your time.

Oh and by the way if you are not already a tasty trade member you should check it out here! This is the best education you are going to find on trading, I personally don't think you could find a paid service that beats what Tom and Tony give each and every day. Look the membership is free when you sign up for a free account at think or swim.

Good Luck Trading!

In The Money Trades

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Covered Short Put in VXX

Reading Jason's post about how he is trading his position in the /ES along with the segment that I caught the tail end of this morning on TastyTrade.com got me thinking about a short position in volatility via the VXX. Being that both VXX and options are a decaying asset I just love the idea of this. With that said I am selling 100 shares of VXX and the Apr '13 $24 put against it for $2.46 giving me an effective short price of $26.46.

And here is a chart that really gives you a visual of what I was refering too with respect to VXX being a decaying asset:

This should be a fun experiment. We have 49 days until April expiration. My break-even is my short price of $26.46, which is only about 40 cents shy of the recent high that printed this week when the volatility popped more than 30% in a day. As I continue to see a long bias in the market I don't see a real threat of volatility getting way out of control. And if I am wrong, due to the nature of this particular product I would feel comfortable waiting it out as not only is volatility mean reverting but this asset really can only decay overtime due to how it is composed.

Good Luck Trading!

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Long Volatility via VXX

As I have been talking about over and over for the past few weeks. Right now the market direction is up and  I am trying to sit on my hands and not add to any new long positions. The risk/reward to adding new positions with markets at the upper end of their range and at 5+ year highs is very hard to justify. The SPY is possibly starting to show signs of getting a bit tired. With that Volatility (VIX) is at the lower end of its range and is currently in the 13% percentile.

With that, this morning I sold the Mar '13 $22 put @ $1.28. In other words I collected a $1.28($128 bucks), betting that volatility is not going much lower and could go higher between now and March Expiration. By break even is at $20.82. I really like the fact that my Theta is about $2.33/day.

After adding this to my overall portfolio I am net long about 42 SPY deltas.

Additionally this week PBI will be paying its quarterly dividend. /The covered call I sold against my stock position is about $2 ITM. So I will update the original post on this position as to whether I get exercised to sell the stock or if I go under the radar and keep the dividend. Either way I make money :)

Good Luck Trading!

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

The Trend is your Friend...so don't fight it!

The markets continue to move higher. I thought for sure we were finally set for a decent correction of 5-7% after Fridays move lower of more than 1% on the S&P 500. But mine along with all the hopes and dreams of the market bears were crushed after Fridays gains were all but a distant memory as the bulls came in to support the market back near 5 year highs. As tempting as it is to get short, I am fighting the urge and sticking to what has been working...and that is to remain long.

I have a short hedge in place, that is very small compared to my long position. But I also have the downside protection from the calls I have sold agains my positions, as well as the extra cushion I am receiving from the dividend from those positions. All in all I am protected in the tune of a 15-20% down move in 2013 based on the positions I have on. So I feel pretty comfortable with the positions I have on. As I have no expectations of a move so sever this year.

I am conscious every day I check into the markets to leave a sizable amount of my portfolio in cash for future opportunities (currently around 35%). The last thing I want is to be fully invested when the market does decide to correct. Or at the very least to be ready when some decent volatility comes back into the options market, so that I can sell some premium.

I tentatively have plans to get a little more short if we get to all time highs on the SPY of around $157, and not earlier unless the markets significantly change their tune.

So for now I continually remind myself that the trend is your friend....until the END!

Good Luck Trading!

What goes up...must go higher?

The markets continue to ride this bull run higher. As we all know, the market is just one big auction where buyers and sellers take turns being in control. But there are times when it seems like one side or the other takes a longer term than they deserve. It is times like these where the market seems one sided. But as they say, the trend is your friend and being long is working in this market.

As I have been saying over and over again the last few weeks since I started blogging again, the only real positions that I have been able to initiate in this low vol environment are long dated high yield dividend plays with covered calls. I am slightly short some SPY's via a short call spread, but my short delta exposure here is very small. I don't plan on adding to this position until we get signs that the market is ready to let the bears into the driver seat for a while.

This morning we are going to see markets gap higher as the overnight markets trade higher and a well accepted US jobs report. I think the report said the private sector added some 157,000 jobs with the unemployment rate at 7.9%.

I will admit that its been a struggle to sit on my hands. But it is honestly hard to initiate new longs at these levels. I did however put on a covered call position in AT&T (T). I know currently have about 40% cash in my portfolio.

Don't get emotionally attached and don't try to force a position. The market doesn't care what your position is or what you think.

Good Luck Trading!!!