Be Careful.....be very very Careful. Buy some Insurance!

Insurance Needed

The old saying goes...buy insurance while you can when you don't need it because it gets really expensive when you do need it and you can't get it. Heed this warning and take action tomorrow.

Double Click to Enlarge on your screen.

What we're watching?

Still watching the dollar, the $VIX and the S&P 500. Don't get lured into following the Dow otherwise known as the DJIA. This index is useless.

If you have money in the stock market you need to ask yourself if you are ready for a possible downturn that could be very very swift. If you are not then for goodness sake first thing tomorrow go and buy yourself some Puts against the SPY which is an ETF that tracks the S&P 500.

Take a look at the SPY Daily Chart shown up above. Notice the Red Circles. Folks I do believe we're headed down and you need to put on the raincoat and buy yourself some insurance. If you look at the second chart and again at the red circles the VIX is looking ominous and looks ready to break out of it's tight range it's been in for the past few months. Keep your eye on this for sure!

The Trade:

Buy the Nov 115 Put for 4.10 per contract.

For you cowboys that are a little more aggressive, buy the Nov 28 Calls for 2.20. This ETF has a daily return of 300% the inverse of the S&P 500. If the S&P 500 goes up 20 points this ETF will go up 60 points. Please remember this is a trading vehicle and not an investment and if you're a cowboy trader taming the wild west you know how these work and if you're not stick with the SPY put.

That's it for today.

DYOD and Happy Trading.

Watch out for the $ Dollar before deciding what to buy!

What we're watching?

If you're thinking you've missed the market run up or are thinking of putting some money to work, keep an eye on the Dollar and more specifically at the etf UUP. It's at a low not reached since January 18th. If you look at the weekly chart below you'll see:

* The Relative Strength is very low at 31.95 but hasn't turned up yet.

* Pretty solid support down at 22.31.

* The MACD still pointing down with the 12 over the 9.

The daily chart looks very similar.

Now that I've bored you to death with technical terms and charts let's get down to the trade.

The Trade:

I've gotten long by purchasing 50 UUP December 23 call contracts for .40. As I showed you in the chart above the dollar has not turned up.....yet but it should over the next few weeks to a month. Based on this thought to help finance the purchase and lower my cost in the trade I sold 50 of the October 23 calls for .17 cents. I have effectively said the dollar will drift here and I'll take the time premium and pocket that cash waiting on the dollar to turn up.

The beauty of this trade:

* If I'm right and the dollar sits tight for 16 more days I pocket 17 dollars for every contract I've sold while I wait.

* If I'm wrong and the dollar takes off, I will buy back my Oct 23 call and depending on the situation going on in the market at the time I will sell the November or December out of the money call. My Dec 23 call should continue up in this case producing a profit either way.

What this trade also means?

You need to keep an eye on the dollar because if it turns up and starts to move up, the stock market will sell off including materials, oil and more importantly metals(Silver & Gold). If you own the etf's on GLD or SLV or GDX(the miners) you should be smart and sell covered calls to protect your long position. If you own close calls on the metals I would suggest you close these and take your money and run. I'm bullish longterm for gold and silver and continue to own LEAPS JAN 2012 GDX & JAN 2013 SLV.

More on silver and gold tomorrow.

DYOD (Do Your Own Diligence)

Happy Trading!

Marty Blackmon

My New Dashboard

Over the past few weeks I have been developing some tools to aid me in my trading...and one of the things that I have created is a dashboard for both the physical side and the futures side of the business I operate in. I have linked up all of th futures stuff to my TOS platform, so that everything futures related is in realtime as well as my make shift P&L section (as without this I have to ask the broker exactly how I am doing). On the wet or physical side the Diff's are current as we garner the intel from the brokers as to where the market is training and the rest of the numbers are based on a day lag of data.

In addition to this screen I use my TOS platform for my charting and to keep an eye on equities, dollar, Euro, and Corn.

Over the coming weeks I plan to work on another dashboard that will have a multitude of factors that will either indicate bullish or bearish, and then based on these factors I will come up with some type of scoring to see where we are on the spectrum (Bearish----Nuetral-----Bullish). I will share once I have what I am shooting for.

Current positions

I have not had much time to post but I do have a few positions on right now at work:

1) Long 5 NOVY HO @ 2.15 with 5 short calls at 2.12 sold for 0.09-->basis is 2.06. I also added as further downside protection I bought the NOVY 2.06/1.99 put spread for 0.0210. This leaves me with 15cts of downside protection and a max profit of 4 cts or a total of $8,400. My risk doesn't start until below 1.99 on this one.

2) I am long the Mar/Mar RBOB/HO spread at 18.7 under (meaning RBOB is 18.07 cts under HO). I ran some charts and this is historically a good spot to be long this spread. I will be looking for this to head closer to zero and possibly positive by end of Dec beg of Jan. I am long 7 of thes spreads. I have a stop placed at 22.5 under which puts my total risk at $0.0443 or $13,024. I am looking for about a 18 ct move toward zero for a gain of about $52,920.

1/3.8 risk/reward.

Overbought or Not...Who Cares?

I have been hearing it all over blog posts and the media that the market is overbought and needs to rest before/if it is to continue higher. I say other wise...look back at the Mar-Apr time from the above chart. The market was overbought for an entire month, and we havent even officially hit overbought conditions by way of crossing over the 70 level on the RSI indicator. I think that this one has legs.

Here is what I am seeing to make the case for higher prices.

1) I looked back over the last 10 years and we have rallied into the end of the year 7 out of 10 years.

2) We have rallied nicely off of the 1040 level putting in a higher low...start of new uptrend

3) Traded above 50 day and 200 day moving averages and have held. Yestedays pull back saw a strong bounce today off of the 200 day MA. Would like to see the 50 day cross back above and then things look really good.

4) Nice consolidation at resistance and then the break.

5) Today prices look poised to close near the highs...I haven't seen the market blink all day.

Last week sometime when we first started knocking I moved all my money in my 401k from money market to the S&P 500 fund to catch this move. Last time I did this in February it was good for a 10% move. I am expecting something very similiar. I am putting my money where my mouth is. I would move everything out on a close below 1090-1100.

MO-JO

Jason--Your goto stock!!!

 

 

Sent to you by Dominic via Google Reader:

 

 

MO-JO

via Think BIG by Bespoke on 9/23/10

Altria Group (MO) has been on a tear this year with a gain of 20.12%, and this doesn't even include the 6.5% dividend the stock pays.  As shown below, MO is currently trading nicely above its 50-day moving average in a solid long-term uptrend.

As a tobacco maker, MO is generally considered a defensive name that investors flock to when the cyclicals aren't working and the economy is in flux.  But a look at MO's historical yearly performance versus the S&P 500 shows just how much of a powerhouse the stock is.  Since 1981, MO has averaged a yearly gain (not including dividends) of 18.54%, while the S&P 500 has averaged a gain of 8.77%.  In the 23 years that the S&P 500 has been up for the year, MO has outperformed the index 20 times.  In the 9 years that the S&P 500 has been down, MO has outperformed the index all 9 times.  On average, MO has outperformed the index on a yearly basis by 9.76 percentage points.  Outperformance in down markets as well as up markets is an attractive quality for a stock to have.

Want actionable advice from Bespoke?  Subscribe to Bespoke Premium today.

 

 

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SEP10 OPEX

This was a bad month for me overall and a lousy quarter too. I had lots of winners and one big loser. By my own admission I took on too much risk on one position and when it moved against me I didn't have the stomach to stay in and manage it. I lost over 50% of my monthly profits on one short trade which only had a max possible gain of $200 to begin with. The 5 delta sure looked like stealing money when I put in on. Lesson learned, hopefully. As I posted when I closed this particular trade for a loss, I would have continued to sell short the weeklys and roll the trade up and out until it bit me. It's probably better that it bit me early because I would have got a false sense of confidence with it. I need to stick with what got me to the dance and stop trying to be a cowboy. This is the sort of trade that would have never made it past a risk manager had I been employed or in a trading group. Since I have to be my own filter and thus restrain myself, I need to work on making sure no trades get put on that don't pass the smell test. This will be a hard habit to break as disciplining myself isn't my strong point. But if I want to be a better trader I will simply need to learn to do so. Also, even though this month was a winner as far as realized trades, I've currently got a MTM loss of about ($1500) for OCT OPEX plays that were put on during September.

Bespoke's Commodity Snapshot

Suprising there is still no inflation!!!!

 

 

Sent to you by Dominic via Google Reader:

 

 

Bespoke's Commodity Snapshot

via Think BIG by Bespoke on 9/22/10

With gold breaking to record highs every day lately, we thought now was as good a time as any to update our commodity snapshot.  Below we provide our trading range charts for ten major commodities.  In each chart, the green shading represents between two standard deviations above and below the 50-day moving average.  Moves above or below the green zone are considered overbought or oversold.

Aside from oil and natural gas, every commodity shown is either at or above the top of its trading range.  As shown, gold's recent move has pushed it outside of its range.  Moves to similar levels over the last year have been met with pullbacks.  Silver and platinum are also just above the top of their trading ranges as well.  And if you thought the metals were overbought, check out the charts of corn and orange juice!

 

 

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AAPL Short Call Spread

I just initiated a 5-lot short call spread on AAPL OCT 300/310 for a $1.62 credit. I am not assuming max loss of $8.38 on the spread. I will watch this closely and if it breaks the upper trend line I will consider getting out. My next point to watch is the $300 level. It just seems like this has a date with destiny at $300 but I would expect a stall there as its a huge psychological number and you could have got in this month alone at $250 or less. If I'm wrong I'm out. Using an arbitrary number and assuming it does break $300 next week, I'm looking at a roughly $1000 loss. My max gain is (5) 1.62 = $810 so I'm risking a little more than 1:1.

QQQQ trade

Sitting here watching the days action and when the SPX stopped short and sold off a bit at another technical level I decided to get short. I already had on a small SPY 115/116 short call spread, so looking at the QQQQ chart it looks like nothing but white bars and the incline is very steep, just don't think it can last. So I chose the 50/48 put spread to buy since it would have to almost break a new 52-week high for me to lose. I just don't think we're ready to break a new high on top of the action the last few weeks. If I'm wrong I lose. I paid .96 for something that was intrinsically worth a little more than that at time of purchase. So I'm comfortable. I used quarterlys so I've got until Thursday of next week. Also, I am going to post my SEP OPEX plays tonight.

Due to research I think I want to get short Corn

So one of the new functions that I will be taking over in the new job will be procuring our internal ethanol needs. In talking with brokers and researching a bit on the ethanol industry I have started to watch corn. It has rallied pretty hard since July. The RSI on this thing is off the charts riding at like over 85. I am taking a defined risk/reward contrain play here by buying the 515/500 put spread.

I bought the 1 Oct 515/500 put spread for 7.625. The best I can do is double my money...I spent 381.25 to put the trade on. The options trade in a multiple of 50.

I will keep you guys posted.

Crunching stats and creating meaningful charts...

Let me first disclose a short trade that I took yesterday on Crude via short 3 80/83 call spreads for $0.90 or about $2,700 max gain if expired worthless (exluding commissions). When I first looked at the trade the spread was trading for over a buck and came off a little. When I contacted my broker I was trying to get in for about .96 but as the spread starting dropping fast with Crude really coming off I decided that I needed to lower my bid. So I dropped my size from 5 lots to 3 lots @ .90 and left the other 2 on for the day at .96 in case it got back up there. But it never did.

I took this trade as 70-80 has seemed to contain oil for sometime besides the occasional move outside of the range. I don't expect to hold this to expiration and will take it off if I can realize 50% of the profit in a short period of time. At the time of initiation the lower strike that I solde only had a 35% chance of expiring ITM. I do however have a contingency plan to sell more if crude were to rally to $80+. I would still be a net seller of premium but would go out several strikes and sell twice as many spreads that I have now...of course as long as I still have the same view I do today.

Above I outlined the trading range that Crude has been in the last few months. Also take special notice of the rejection at the 200 day moving average that sent back below its 50 day moving average as well. All I need is about another $1.50-$2 move lower and I can probably get out for 50% of the premium that I collected. The spread closed around $0.75 today. So I either need the further move down or will have to wait for the effects of time decay. I have set an alert for to tell me when the spread is at or below 0.45.

Now onto the other research that I have been doing...

Over the past few weeks I have been pulling historical data for futures and the physical spot market. For futures I have put together studies to make seasonal plays on the differentials between HO and RBOB.  There are certain times of the year when HO trades at a premium to RBOB and other times of the year that RBOB trades at a premium to HO. The obvious examples are heading into the winter months the demand for HO increases thus driving it higher and trading over RBOB. For RBOB it is as we leave the cold winter months and head into the peak driving season, with demand falling off for HO and demand picking up for RBOB it reverses the relationship. In addition to this analysis I have put together an extensive analysis on the diff's for some of the major products here on the west coast in the spot market that I will be trading via EFP.

During my research I have devised a trading system to trade the spot market. From what I gather most of the traders in this space trade based off of word of mouth and fundementals. I want to use this with some added science.

I will post more detailed posts on this in the coming days and weeks.

Flipping from Nuetral/slightly bearish to cautiously bullish

This morning I closed out my iron conrdor in RBOB for a break even trade exactly. As the markets keep challenging overhead resistance levels and set up bullishly over the last few weeks. I have found myself less and less convicted to the downside on RBOB. I made my last short on RBOB yesterday and almost made one more today which would have worked out just fine. But with the positive news hitting the market this week and the bullish formations on the major indexes I had to switch my lean from nuetral/bearish to caustiously bullish...until otherwise proven.
First lets take a look at the /ES:

In the above chart I highlighted in the grey box the bull flag that I see forming. The /ES has been consolidating and digesting its move off of the lows (a 4-5% move) and looks to be setting up for a move higher. The reason I include the S&P 500 into my analysis, is because the correlations between it and the oil commodities have been significant. I actually ran the correlation between RBOB and SPY for the last 100 days and it is sitting at 0.88 (the most correlated of all the oil products).

So until this relationship goes away I will continue to look to the equity markets for clues to the next move in the oil futures that I follow: RBOB, HO, CL.

Now onto RBOB and the trade that I took right before the GLOBEX closed down at 2:15 for its routine 45 min close.

First on the daily chart below you will notice that I drew a trendline from 1.7850 to 1.9680, as RBOB has made a series of higher lows and higher highs...textbook uptrend. In addition to this trend formation it is also forming an ascending triangle which also is bullish. And in case that was not enough it also looks like equities are going to break out to the upside.

So the trade...I set an alert for a RSI cross into oversold conditions on the 15min time frame. Although this did not close in oversold conditions, this is where I decided I wanted to get long. The alert triggered when RBOB traded down to 1.9225 and I immediatly put in a market order to buy 5 contracts and was filled on average at 1.9279. I am looking for a move back to at least the resistance level and maybe even beyond, my entry is right at former resistance that I had used as a pivot for a short the other day which was good for 1ct.

Immediatly after executing I put in a stop at 1.90 as to mee this would tell me that I am completly wrong on this trade and save me from any drastic move in the overnight market. Additionally I put in a few limit orders in case the market got there in the overnight session. I put in a limit to sell 2 @1.94 and 3@ 1.96. I was executed on the 2 @ 1.94 and it is yet to be seen what will happen with the other 3. As I write this RBOB has been as high as 1.9504 in overnight session and is currently trading at 1.9464.

I will update as this trade develops.

Note: I have done a few day trades that I have not posted about as I do the analysis intraday and it seems like a burden to do a post on a trade that I am in for less the a few hours if that.

A first for me

I exercised my first option yesterday. I had been long a JAN11 (MET) 12.50/30 call spread since March 09' and the BxA has been so wide that you can't close out the spread without giving up a lot of edge. I've had an order in at the middle for weeks and it never gets filled. So instead of leaving profit on the table when it's more than $10 ITM, I decided to get long the stock and receive the .75 dividend coming. Date of record is in late October. I now have an ITM covered call. My hope is that I get exercised in October because the person holding the long 30 strike will want the dividend. If this happens then I get out at 100% of the possible profit about 2.5 months before Jan OPEX. If I don't get exercised, then I pick up .75 on 1500 shares. If I can close out at that time for .75 or less then in effect I got the max spread as well. 

I just read this on Hedgeye

HEDGEYE I just read this on Hedgeye Hi dominicdibernardo.uploadpost@blogger.com, I have been reading a lot of the research from the folks over at HedgeEye and I tend to agree with a lot of the stuff they are saying. Although in the short term the market is rallying I think it is important to keep everything in perspective and remain nimble. I think you'd be interested in this note from Hedgeye. Click the link below to read the article: https://www.hedgeye.com/friend_invitations/click_link_in?token=43d502c15d4173d2e213671727494c83db59e12c This electronic mail transmission contains confidential information intended only for the person(s) named. Any use, distribution, copying or disclosure by any other person is strictly prohibited. If you received this transmission in error, please notify the sender by reply e-mail and then destroy the message.

Short RBOB into jobs number tomorrow

Below is a more micro look into the price action for RBOB (30 min chart). We also have a few things working in our favor on this trade. Tomorrow the jobs number comes out, it’s a three day weekend, and the market has rallied pretty hard. I think all of this adds up to a selloff into the weekend. I have no reason to believe that the job market has gotten any better since last month, even if it is it feels like this market has priced in a surprise.

RBOB is trading up near resistance at 1.9283 with another resistance level overhead at 1.9687. It is also running into overbought conditions on the 30 minute time frame (as seen above in lower study). I like the risk reward of getting short at 1.9250 using a $0.05 stop (1.9750), which means RBOB would have to blow past two levels of resistance. I chose a $0.05 stop as I found out $.02 was arbitrary and to tight. Instead I got a bit scientific and am using the ATR (see daily chart below, lower study) to give it some breathing room. I think there is at least $0.10 of downside on this trade.

I shorted 3 Oct RBOB contracts @ 1.9250 with a stop at 1.9750 (0.05 stop ~ ATR).

If I get a $0.02 retracement before the close I will take it.

Waiting to get long volatility via VXX

The market is having an impressive rally this morning after it had tested 1036-1040 area of support 3 times in the last 6 sessions. It holds as support for now. I am however as usual suprised on the size of the upmove. I see more upside on the /ES at 1100, this is the area that I will be interested in getting long the VXX.

We have a jobs number out on Friday which may humble the bulls again. As I have mentioned I am leaned bullish for this week and maybe next. But this tendency depends on Friday's jobs number and how long it takes us to get to 1100 on the /ES as I think this will be the home of the next lower high before we make a move to test the July lows of 1002.75.

I highly anticipate a follow through up day tomorrow and if we get close enough I may try to get long the VXX before Fridays Jobs number if it looks attractive. I am leaning towards doing a risk/reversal by way of selling the ATM put and ATM call, where ever it is at time of execution. I expect that the VXX will be near 20 or maybe below, currently at 20.68 as I write.

I will keep you posted!