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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S&P 500 New High Chart of The Day

Starting today I will be posting a daily chart with the new high of the day. And in the event that I post the chart to early and we make another high from the time I posted the previous chart I will post a new chart the following day. This should be fun documenting this epic move to the upside.

Good Luck Trading!

In The Money Trades

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Another Day, Another New All Time High

The chart that has been amusing me each and everyday I look at it. Today we have the /ES or what I refer to as the market up making yet another new all time high. I read a statistic this morning that said that the market has closed higher every Tuesday this year. So new high is in at 1,670.25. The interesting thing I have noticed the past few days is the vix has been trading higher as the market has traded higher, not sure if this is a sign of things to come or if its meaningless. I feel like the question is whether the /ES will trade to 1,700 before having a single decent downtick.

I will be the first to admit that there are plenty of gains to be REALIZED in the market. But as I write this the gains we are witnessing in the market are all paper gains. Remember, you don't actually make money until you book profits. Remember all those folks that had made thousands and maybe hundreds of thousands of dollars of home equity? We all know what happened to that paper gain.

Look I am happy that the markets are showing solid signs of recovery in the market. But the retail investor is going to be the one playing the regret game for not booking their double digit gains when they see this market make a corrective move to the downside when profit taking eventually takes place. At the very least if these folks are not going to sell I hope they are at least selling calls against their long stock.

Anyways just my ramblings for the morning. I continue to be short the /ES and trading around the position. As of this morning my effective short is at 1,627 on the /ES. The key has been to stay small, not trading more than 1 contract in either direction. With hindsight we can see that has been key to staying in this trade, for if I continued to add to this position I would have likely been forced out of the trade. But instead I have stayed small enough to trade around the position and continue to increase my effective cost basis.

Good Luck Trading!

In The Money Trades

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Should I Manage My Own Money?

This past weekend I was talking to one of my friends about earning potential, investments, and realistically how much time was actually needed to manage your own money. And is it worth it?

First lets talk about traditional money management for retail investors. The incentives of the financial advisor and retail investor are not aligned. What I mean by this is that financial advisors are compensated for assets under management and not performance. Meaning they are not compensated for making you money. Furthermore they make money whether you make money or not. WHAT? So in a bull market like we have had the past 4 years these financial advisors look like geniuses. But its easy to make money in a bull market. When was the last time you heard someone tell you how much their financial advisor made them a killing when the market fell 20%??? NEVER!!!

So you tell me do you think it is worth having a financial advisor?

Lets say you agree with me that maybe financial advisors are not worth it, BUT the markets are so complicated and I don't have the time to stay on top of it. So in the end putting my money with a financial advisor is the best worst option I have...Look, I once read a quote "if you leave your future in someone elses hands, guess what they have in store for you? Not Much...."

Think about why you think the financial markets are so complicated. There is a vested interest out there to keep individuals mystified about how markets work because they make money from your lack of knowledge and knowhow. The reality is that the markets are not that complicated and I honestly think you can get by managing your own money with 30 minutes a day, 5 days a week. All you have to do is learn the basics and after that most things just go on autopilot. And 30 minutes a day is probably an overstatement because I am assuming that once you start learning, you start having some fun and want to have a little involvement everyday.

This blog is here to de-mystify the financial markets. Anytime you have questions about anything I am writing about or have a suggestion for future topics, please let me know by leaving comments below.

Additionally one of the best things you can do is go over to and tune in to Tasty Trade, your best FREE resource anywhere on the net.

Good Luck Trading!

In The Money Trades




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Hedging Short /ES Position

As many of you know who have been following the blog the past month or so, I have flipped from bullish to bearish. Admittedly I have been wrong as the S&P 500 has rallied over 100 points since I initiated my short. As you may recall I sold a call on the /ES at the 1,555 strike for 32 points that effectively got me short at 1,587 which was only about 5 points off of the S&P 500 all time highs. We have since then traded to NEW all time highs several times over. With the most recent high putting us 1,000 points off the March 2009 low of 665.75...putting the new all time high at 1,665.75. The thing to keep into perspective is that it took only 17 months to trade off the previous all time high in 2007 to the March low. It has taken over 4 years to recover from that fall and finally build enough momentum to make a new all time high.

So what have I done while the market has moved 110 points against my short position? I have bought OTM upside calls at 1615, 1650, and 1700. I have sold various OTM puts and put spreads. The position started off as a naked call position that had unlimited risk to the upside, but once my breakeven was challenged I had to do the prudent thing and begin to hedge to the upside while defining my maximum risk. At the same time I have had to sell put premium in the direction I want the market to go at extremely low volatility levels. The short position at this point is really just a stake in the ground to trade against. So far I have moved my breakeven up 30 points to 1,618.

Over the coming weeks I will continue to trade premium around my position. We still have 33 days left until expiration...and really about 30 days before I need to start thinking about rolling the short call out to pick up some duration and hopefully some additional premium.

I will continue to be conservatively aggressive if that makes any sense. Although I have sold OTM premium in the direction I need the market to go, I have been conservative in the sense that I have left my ability to profit from a downside move open. My preference would be to get a nice pop in volatility and thus option premium that would allow me to be a little more aggressive in trading around the position. Otherwise I am forced to continue to sell low vol premium.

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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2013 On Track To Set Record Margin Levels

I think the article below does a better job than I could explaining the landscape of the market. As of the March data on investor margin levels, we hare at $380 Billion vs the 2007 All Time High of $381 billion. You have got to assume with the markets continuing to edge up since April that we have surpassed the all time high. As we all know, leverage is a double edged sword and many investors are going to feel some pain when the market finally has a decent trade lower and the margin calls start flying from their brokers. So without further ado, here is the article from the Wall Street Journal:

High levels of margin debt on the New York Stock Exchange are raising concerns about the state of the rally.

Stephen Suttmeier, technical research analyst at Bank of America BAC +0.87%Merrill Lynch, notes leverage, as measured by NYSE margin debt, rose 28% in March from a year ago to $380 billion. That figure is slightly below the July 2007 peak of $381 billion.

Market analysts track margin-debt activity as an indication of investors’ appetite for taking on speculative trading. It has been trending higher since bottoming out during the financial crisis and currently is hovering around all-time highs.

“Leverage can be used as a sentiment indicator because it is related to investor confidence…Although it should not be used as a market timing tool, the implication is contrarian bearish,” Suttmeier says. ”Peaks in NYSE margin debt preceded peaks in the S&P 500 in both 2007 and 2000.”

It’s no surprise people have been taking on more risk as the market has moved to record highs. But the question is what happens when the easy ride higher turns south and some of that margin debt turns into margin calls?

A potential pitfall for those trading “on margin” is a sharp decline in stock prices, which can expose investors to margin calls, requiring them to post additional collateral lest their brokers sell their securities to cover the debt. A wave of margin calls can worsen selling pressure on stocks and was seen as partly to blame for the market’s woes during the financial crisis.

“It’s rather alarming to see NYSE margin debt just shy of its all-time high as of the March reading,” Cullen Roche of Orcam Financial Group wrote on the Pragmatic Capitalism blog (hat tip Business Insider).  ”My guess is we’ve actually already surpassed the all-time high though we won’t officially know until April data is released.

“Fun times knowing we live in a world that is built on such a fragile foundation.”

–John Kell contributed to this report.

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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WOW! I think that sums it up

Many of you have been reading this blog may have noticed that my blogging frequency has increased over the past few weeks as I got short the market. As you can imagine I am down money since getting short the market, this is the time when most people pull away from posting. But my goal is to stay active and involved and show you that trading is not always rainbows and butterflies. It is times like these that the things I have been sharing over the past couple of weeks are so important. You need to trade small relative to your account. I have a decent short position in the market and my portfolios are set up to make some awesome returns if we finally turn lower. But something I would like to point out is that my account is 70% Cash. I learned a long time ago how important it is to live by the rules you preach.

Because of my discipline I am able to continue to hold my positions, I have time and capital on my side. I can't stress enough how important it is not to get to big.

Now onto the market analysis:

The /ES has broken through the 1,600 level with strength. The high put in this morning is 1,611.75 as I write this post. Obviously with all time highs, there are no levels of resistance to the upside. The market resilience is very impressive to say nonetheless. There is no fear in the market and with a breakout above 1,600 this market could have an extended move to 1,630 in the short term. Its scary when everyone wants to be long the market. Now obviously I am a bit biased with a overall short position. But take a look at the longer term chart and see what's happened the last decade when markets were breaking out to all time highs:

Is the 3rd time going to be different?

I don't consider myself a technician but, a google search for triple top yields results of a very rare and bearish chart pattern???? Anyone following this blog have any comment from a technicians perspective on this possible chart formation?

Where do we go from here?

Good Luck Trading!

In The Money Trades

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Short Premium in VXX

Believe it or not, but the market continues its grind higher only 3 points off its all time highs after a nice move lower during yesterdays session. If the market continues to grind higher this does not bode well for my overall portfolio as I am leaned to the short side. I think as I write this I am about 200 SPY deltas short. With that said I decided to sell a 19/20 put/call strangle with a kicker buying the 23 call to define my risk to the upside.

Now you may be asking yourself why I would add more negative deltas. Well my thought is that we are either going to have a move that finds velocity to the downside which will cause volatility to pop (think February move with 35% pop) which would be good for my overall portfolio and leaves my max risk on this trade at $90 to the upside. Or the other scenario is we keep grinding higher with little one day sell offs with small pops in vol in which case I don't think vol really goes anywhere between now and Jun expiration. My break even to the downside as it stands is at $16.46. The max gain is around $510.

And for full disclosure, one thing I will be looking to possibly do is sell some 30 calls against the 23 that I bought on a decent pop in vol. This would effectively move my break even to the upside to $30 (a 55% move in vol). These calls are currently trading for about $0.30 and would need to move another $0.20 before I decide to sell them.The new risk profile would look like this:

Good Luck Trading!

In The Money Trades


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/ES New All Time High in After Hours 1,595.50

What a run this market has had not just in 2013 but really since October of 2012. If you take a look at the chart that I have shared below you will notice that we started this uptrend we are currently in at 1123 on 10/3/13. As of last night the all time high is 1,595.50, thats 472.5 points or +42%. That is a very impressive run indeed.

In 2013 alone we are up 135.25 points or about 10%. Q2 is over and its a new quarter. The question everyone is asking themselves is whether the run up can continue or is the market getting tired and ready for a nice corrective and consolidation move?

I honestly don't know how you can commit any new capital to the longside at all time highs. Will the seasonal sell in May go away provide the needed environment to bring this market in? Only time will tell, in the meantime I will continue to remain negative delta.

Good Luck Trading!

In The Money Trades

And 1 favor that we ask: 

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