8% Corrective Move On /ES, Whats Next?

We have had a very nice corrective move on the /ES the past few sessions. And since topping out at 1,685 (the all time high), we have traded off about 130 handles or about 8%. The question is whether the move is over or will we see lower prices?

I continue to be short the /ES (net delta position) as I believe we could see a bit more downside until we see 1,530 on the /ES and then that will likely be followed by some consolidation through the rest of the summer. In the above chart you can see the profitability range I have highlighted in grey based on my aggregated position in the /ES. To date I have collected about 100 /ES points in premium over 52 contracts traded. Although I have collected 100 points my max gain is only 70 points or $3,500 on this aggregated position with 66 days left to expiration.

Good Luck Trading!

In The Money Trades


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Big Reversal Yesterday

Yesterday I started a new chart of the day series to record this epic move, which now looks like it may be a short lived series. We did however go on to make another all time high after my morning post yesterday. The new all time high put in on the S&P 500 via the /ES was 1,685.75...the day started out very well for the bulls until fear finally showed up in the market bringing with it close to a 40 point reversal on the day:

Before we made any new highs on the session this morning I went ahead and sold a 1,610 put for 20 points against my much publicized short /ES position. I also bought in my short 1,555 put for a small gain as I continue to believe and operate that staying small with no more than one contract of exposure the prudent thing to do in this trade. My new effective short price as of the close yesterday is 1,635 and my aggregated position looks like a giant short call spread:

Looking at the risk profile above you will notice that I have hedged off my risk at the 1,700 level via a long call. Additionally although I sold the 1,610 put I do own a 1,600 put that keeps me positioned well to profit for an accelerated move to the downside. And just for the record if I were to sell out my long call and put, my effective short position would be around 1,640, but that would also expose me to unlimited upside and downside risk.

To date I have collected a total of 80 points over 26 trades. And as I write this the market is about 100 points off where I got short around 1,555.

Good Luck Trading!

In The Money Trades

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Remember When Apple Was Going to Be 1st Trillion Dollar Company?

In the not so distant future everyone in their brother were buying Apple and touting that it was going to be the  first $1 trillion dollar company. At its all time weekly closing high of $705 Apple was valued at $663 Billion. Don't get me wrong, I love apple but really a trillion dollars. The at some point the market ran out of buyers and over the preceding 8 months the stock lost $300 billion in value.

Why am I telling you this? Its to make a point that things do not go up forever. Eventually we run our of motivated buyers and eventually we get to a place where people need to take profits. The crazy thing is that it usually takes an overdone and overhyped move to act as the catalyst lower.

As I write this the markets are making yet another all time high at 1,637:

I admit that I have no clue when this market will finally correct, but I also still favor playing the downside when thinking about risk/reward. Although my portfolio is short delta, this does not mean however that I have not been taking on any long trades. I have and will continue to play the upside as I trade around my short position until the market finally starts moving in my direction. The ultimate goal at the moment is to keep losses as small as possible while I wait out the market.

Why am I short? Because I don't like the prospect of entering into a position at all time highs. Obviously I don't know which "All Time High" will be THE ONE, but eventually we trade lower off of an all time high and I have obviously been early the past 5 weeks.

Good Luck Trading!

In The Money Trades


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Did we forget that markets trade lower???

I am short all of the above with various strategies. These charts are starting to look pretty ridiculous. My assumption is that eventually we will have a two sided market where sellers will take control for a bit while the bulls catch their breath. I continue to just wait as we continue to grind higher.

Not much else to talk about with markets still at all time highs and the vix super low, doesn't bode well for selling much premium. Only have about 25% of my capital committed.

Good Luck Trading!

In The Money Trades


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JNJ: Oops I did it again...18th Consecutive Week Up

I am short and it is not working. But while I am a little frustrated, I am at the same time amazed with this run to the upside. The new high for the week was put in just shy of $86 at $85.99. May 1st was a day of hope for the bears where JNJ traded a buck lower, we all thought it was day 1 of decent trade lower (but it was just a head fake). I continue to be long the May '13 $85 puts and it now seems like we are going for a hail mary on this one given its resilience to the upside (probabilities say it only has a 17% chance of hitting $82.50). But then again, what do the probabilities say about this thing finishing higher for a 19th consecutive week in a row?

But after getting short this name starting on 4/8 at the time when it was only up 14 consecutive weeks in a row, I am committed to the trade. Eventually this thing will crack. I would love to see some profit taking in this name for a move $5 lower, that would be ideal :)

Other than hoping for that down move between now and May expiration I continue to sell some premium against my long puts with the weekly's to try to mitigate the time decay as much as possible.

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

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JNJ Finishes Up 17th Consecutive Week

I really don't have to say much here, as many of you that have been following the blog know I am short JNJ with conviction. We made another new high this week and closed up for the 17th straight week in a row. Call me crazy but I am sticking with my bet that this thing is going to have a down week. And I honestly feel that the higher this thing goes the harder it is going to fall. My first target is $80/share and as low as $76/share.

I had previously mentioned that I was going to roll my $85 puts out a month if I did not get the move lower I was looking for, but after watching the price action the last few days of this week. I decided to keep the May puts in place with 21 days to go until expiration.

We will see what happens next week.

Good Luck Trading!

In The Money Trades

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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!

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