We have earnings coming up and IV (implied volatility – think of this like a measure of the buying pressure on the options) is high.  Here’s my thinking…

Once the “unknown” of the earnings announcement becomes known (either through the actual announcement, pre-announcement, or another carrier’s information) the IV will deflate out.  Short of a big surprise that should happen quickly and without a ton of price movement.  So, I’m going to sell an ATM call and an ATM put  (short strangle).

Now, the probabilities of all of this happening correctly are a bit low (I figure 30%) so I’m going to do few things.

1. I’m  going buy a put or call for each short for protection.  If UAUA goes to $0 (zero) or goes to $100 I’m protected.
2. If I get some movement, but not a lot, I’m going to close the costly side and reposition.  This will help increase my probabilities.
3. I’m going to severely limit the amount of capital I have risked on this trade.

Max Profit (if held to expiration and price stays right at $14) would be $1,700 on $200 risked.   Likely profit (two weeks in, price stays within breakevens or at least I’m able to adjust) would be $200 on $200 risked.

If I’m wrong I only lose the $200, if I’m right I could double my money.  If I’m really right I could make 500%.

Hmm… I just saw something that would keep me from doing this trade.  Can you guess?

Mojo

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As part of this, I will show you how to create and test a new strategy and use some of the new backtesting features (OnDemand) of TOS.  I will be using this strategy through 2010.

See you tonight at 730 ET.

Mojo

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Great mixture of logic, spiritualism, philosophy and military arts combined with differing technologies and a compelling storyline beautifully executed.   (I love the animals, hardware, and homage to the better parts of our oceans.)

This movie is a game changer and will create a series of sequels that will set new records for revenue and profits.  I haven’t been this excited about a movie since the original Star Wars.  Awesome!

I will be taking my kids to see it soon (11 and 12).

Mojo

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I’m probably more bearish than most so I spent a couple of hours going over the charts.  Bottom line – Yes, we are beginning to see the early signs of the market turning but we are a long way from being bearish.  The Dow, SPX, and NDX are still looking strong on the daily and weekly charts.  Heck, even the RUT is strengthening. 

My point is… Don’t jump the gun.  Wait for the setup and look for some confirmation.

Mojo

PS – We are down -58 in the futures.  I would look to fade this move early in the morning unless it exceed -80 pts.

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I’m looking for some cheap fills on calendars and maybe some long options to sell time against.  If we get a gap-n-go (to the upside) then we should see vols come down pretty quick.

Mojo

PS – I’m thinking about moving our classes to Saturday at 11am ET.  Send me your thoughts?

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The market action after the FOMC announcement would have normally shot to the downside (classic N pattern), instead all of that move jumped on into the close (bearish sign).   During our team meeting last night I saw several charts showing little conviction to the upside and many more charts breaking down at 5 min, 15 min, and 60 min bars.

Once we get some confirming closes on the 60 min bars we will see a good bit of draft to the downside.  Take a look at this chart on the Diamonds (DIA):

We got a gap up yesterday that didn’t quite get closed.  If we get a gap up today then that will only add fuel to the fire for a quicker downside move.  As such I would expect to see us hit our first target early.  I’m going to use this as an opportunity to BTC (buy to close) some short Nov puts.  If we hit the second target I would expect to see a little bounce.

All in all I’m not expecting a huge range today but I would watch out for some burst of violence.

Mojo

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Trade Like a Fund Manager

Its written by a guy who tracks the performance of investment advisor newsletters and he does a good job of explaining the potential mindset of fund managers going into the end of 2009.

Anyway, take a few minutes and take a look….

Mojo

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1) Its the last day of the month in October.  Mutual funds typically report their holdings for the quarter / year on this day so they are going to wanna look really smart.  In order to do that they will be selling their losers (Sprint), selling their winners that are only moderately performing (CMG last week) , and buying anything with recent breakouts and good press press (Google, Amazon, Verizon).

2) We had a pretty violent sell off on Wednesday.  Thursday (reacting to ‘good’ news in the bipolar way that the market does) we recovered more than 50% and finished strong in the late afternoon session.

3) Having a gap down at the open will give us momentum to the upside to close this gap and possibly carry us forward.

4) We have penetrated and bounced off of the 21 day EMA.

Don’t get me wrong.  I’m still bearish (for what that’s worth!  ) but I think we will see some upside today.

Mojo

PS – If anyone is interested I’ve been working at a charity haunted house.  Come out and see me at the Unlucky Inn!

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NDX- I put on a double calendar Nov/Dec 1700 and 1800. It’s currently centered on my graph and I will again look to adjust if NDX slides toward one of my breakeven points or if I hit my 7% loss mark.

I’ll keep you posted. Good luck and have a GREAT weekend!

-Gekko

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I watched the futures charts (/YMZ9 on TOS Charts on “Charts” tab) as I planned my exit on RUT. I saw that we had just hit the low for the day at 9884 at 10:42 down from the closest previous high at 9922 at 10:21 am to the LOD (low of day). I drew my Fibonacci retracement and knew that it would approach the 50%-61.8% lines within this range then come back down most likely for a short jaunt. In futures trading this is called the “ambush” play. It’s a great way to fake out the amateur traders and follow along with the pros. Most amateurs would have seen the low of day (LOD) hit then would have gone bullish, not factoring in the ambush zone.

So I placed my whole order exit on the iron condor and lowered the limit amount by an extra 2 cents to the debit order so I could squeeze out just a little more on the exit.

This is just another way you can exit your trade, especially when you can’t watch it intensely due to work, schedules, etc. This is a much safer way than legging out if you’re not an experienced trader (yet).

If you’re in this trade with me, good luck on your exit!
-Gekko

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