Trading with Stock Options

Short Term Bull on SMH ETF

2010-08-29T22:17:00.005-04:00

Looking at the daily chart of the SMH ETF since May, you can see its been in a range between $25.50 and $28.50. Its now at the bottom of the range. At the bottom of the chart you can see a huge buying volume on Friday giving it that nice reversal candle. Also the Stochastic had a crossover and the MACD is in oversold territory. I'm looking at the OCT 26 calls for $84. with a delta of $43. If this rises the expected 2 or 3 bucks, this will give you 80 - 100% profit. The moving averages are overhead and may act as resistance but by looks of the chart its been just plowing through them up and down. I'm more concerned about the $26.70 level. Any issues here then, I' may look to sell all or part of the position.
Later.
Trader Dad!

HP stock outperforming Dell this year.

2010-08-24T10:44:00.004-04:00

With the recent bid for 3Par storage from Dell and HP, the 2 companies are battling it out. The chart is showing HP (blue) outperforming Dell (black) this year. Though both stocks are in a downtrend noted by the dotted lines, HP's decent is not as steep as Dell's for now. Both have a large descending triangles but Dell has broken down beneath it where HP is still hanging on. Since the relative performance of HP is better than DEll right now, HP will be on the watchlist when the market finds a bottom. I'm going to let this play out a bit since the market is still in summer slump mode.

VMware : VMW leaving the rest behind!

2010-08-23T22:42:00.001-04:00

Up until 2008, VMware: VMW (black line) was relatively correlated with the NASDAQ: QQQQ (blue line). Then throughout 2008 you saw small upside breakouts from VMW and then as the summer rolled on VMW made a decisive break away from the rest of the market. Well guess what, its summer time again. Can VMW maintain this rocket? Not sure, what I don’t think though is that the price will tank in the next month. Something to consider is selling the SEP 80/75 put spread on VMW. It’s currently selling for $145 and will eat up $365 in margin. As long as VMW stays closes above $80 by September’s expiration, you can collect the $145 which puts you at about a 30% profit.

Major move from China: FXI coming soon!

2010-08-23T21:53:00.003-04:00

I’m really interested in China right now. They recently passed Japan as the 2nd largest economy in the world and closing in on the US. Over the past 2 years, the FXI, which tracks a variety of 25 Chinese stocks, has been forming a large triangle wedge and the trading range is tightening. The move to break out here could go either way. China has enough power right now to help boost the US if it breaks upwards. If not it could pull the US down with it. I’m currently long FXI but keeping a tight stop. C’mon China, give us a boost. The US is rooting for you. Once a direction is established, I’ll post some trading ideas but for now I wouldn’t initiate any new positions.

Cloud Computing

2010-08-23T14:34:00.002-04:00

So what is cloud computing? Cloud computing is a term referring mainly to hosting virtual servers (over simplified). The reason it’s so hot right now is because by virtualizing servers, you can run multiple virtual servers on the same piece of hardware. In many cases you can get a ratio of 50 to 1 with built in redundancy for hardware failures. The reason why this is huge is because if you’re a company and you have let’s say 100 servers and they’re getting old. You can by 5 servers or so and some storage and consolidate all you’re servers to a smaller set of hardware. In addition, if you need a new server you just bring up a virtual one instead of ordering a new server, and paying for it. It’s a no brainer for medium to large companies who are trying to save money. Some of the major players in this game are VMware (VMW), Microsoft (MSFT), EMC (EMC), Cisco (CSCO), Dell (DELL), and HP (HP). There are others but these are the main players. I’m currently long EMC which is a major storage provider needed for all the virtual disks to sit on. I’d also be looking to be long on MSFT and CSCO but not ready to jump in yet. Dell and HP are still used quite a bit for the server side but it seems to be people won’t be buying as many servers since you don’t need as many once you go virtual.

EWZ. Go Brazil.

2010-08-21T22:04:00.003-04:00

So if you think the US economy is in the toilet and don't want to trade here then look to other countries. 2 countries I'm near term long on are Brazil and China. Brazil (EWZ) has been rallying since May and is trading above its 20, 50, and 200 day moving averages. Friday's doji candle has a long bottom wick as the stock dropped during the day but closed near its high/open price. I would expect a short term bounce but looking at short term resistance at $72 and long term resistance around the $73.50 range. There is a large ascending triangle pattern (orange lines) that started in Dec. To get really bullish on EWZ you'd need a breakout above $74. Just another idea for a short term trade.
Later.
Trader Dad!

Long EMC

2010-08-20T09:17:00.004-04:00

I'm currently long EMC with some SEP 19 calls. I'm down a bit because EMC has been pulling back with the market but I'm looking to add to my long position. I'm going to add some OCT 19 calls. EMC has been in a nice but volatile uptrend since mid May. EMC (black line) started outperforming the Nasdaq (QQQQ blue line) in May making higher highs and higher lows while the market has been stuck in a range. When this selloff stops, I think EMC will be set to recover quick.
Trader Dad!

WMT vs. TGT Article

2010-08-18T16:46:00.000-04:00

http://www.cnbc.com/id/38755830

Why you should not play Earnings! Target Update!

2010-08-18T16:09:00.003-04:00

If you look at today's candle after Target's earnings release, you'll see a large gap down and then a huge reversal. I was thinking the stock would go down and was right at first but then the huge reversal happened which would have been a huge loss. Luckily my entry rules weren't met and I didn't get in the trade. Had I gotten into the trade, a trailstop would've helped me capture some profit but it still would've been a risky trade. The point here is, do not try guess a stock's move after earnings or make any assumptions after the move. A lot of things can happen throughout the day so don't make decision based on opening price action. The market has too many whipsaws going right now that you're likely to get spit up and chewed out. Since Target is getting such a boost today, I will keep an eye on this because I think a drop may be coming. However, the volume was so huge today with TGT, that going short may be risky too. So until then. S.O.H (Sitting on Hands)
Later.
Trader Dad!

Walmart vs. Target

2010-08-17T12:56:00.002-04:00

Walmart rallied hard after today's earnings announcement. Profits were good due to cost cutting and their international business. They're looking to have 300 stores in China soon which China just became the 2nd largest economy in the world this week passing Japan. The rest of the market is rallying also today including Target. Target reports earnings tomorrow but I'm not expecting the same party that WMT is throwing today because Target is primarily a US company with limited exposure outside the US. So if earnings are average, TGT's price could still rise with the broad market rally but I would expect a drop after that, probably next week. If any trade setups start shaping up for TGT I'll post them later this week.

Short Term Long FXI

2010-08-16T16:05:00.003-04:00

Looking for China to fill the gaps from last weeks fall. I think the longer term trend on the FXI is down but expecting a bounce this week. Looking at the Sep 41 calls for under $1. I'll probably get rid of this before the weekend and keep a tight stop on it. If we get some gaps up and the target is hit, I may look to get short around the $43 range.

Looking at Target this week! TGT

2010-08-15T21:58:00.003-04:00

Target's earnings are this week and by looks of the chart it could go either way. Like the rest of the market, its right on the edge of a bounce higher or a drop. My guess is a drop. There aren't many stocks rising after earnings like they were the last couple of weeks. Since TGT has been down the last 4 days and Mondays are often up days, I'm looking for a slight bounce Monday and drop after that. Most likely my Put entry will be at 50.70 which is Friday's low. If we break below there then we may be headed to the low of 6-29 which was 48 and change. If I see this shaping up I'll post it. It really depends on what the market is doing.

EMC and DELL for next week

2010-08-13T15:37:00.003-04:00

Looking at 2 plays for next week. DELL earnings are coming out and they've got that lawsuit/bad PR thing going on about their computers sucking a few years ago. So my guess is the stock will drop. Also looking at EMC. EMC was in a nice uptrend but pulled back huge this week with the overall market. You can see EMC found support at the trend line from the May 6 flash crash and is still trading above the 200 day moving average (green line). If the market finds a bottom soon then EMC may get a good bounce so I'll probably look at some calls. Monday should be interesting to see if the downtrend will continue or not.

RRC Put

2010-08-05T15:33:00.004-04:00

RRC has been in a downtrend and is brushing up against resistance. I had a buy stop at 38.71 which is .05 below Wed's low but it wasn't triggered today. Today's action formed a nice doji which may be showing some weakness in the run up these past few days. I'm still liking the chart so I will most likely set this day order up again for tomorrow. Looking at the Sep 35 Puts for about 80 cents.
Later.
Trader Dad!

Bearish on GLD

2010-08-01T22:54:00.003-04:00

Gold has been drifting lower over the pat month. The 20 dma crossed the 50 dma on 7-9-10 with the 20 dma acting as resistance. GLD has been up the past 3 days closing near the 20 dma but on lower volume. I'm placing a mkt buy stop @ 114.08, which is Friday's low, for the SEP 115 puts. If GLD breaks above the 20 then no trade. If it falls we'll try and and catch it. Will update this week.
Later.
Trader Dad!

GE Put Play

2010-07-19T22:15:00.005-04:00

Looking at buying a put if GE stock price hits 14.42. Earnings are already out and the stock dropped afterwards. Nice doji today but I still placed the buy order .05 below today's low. I was also looking at SBUX but earnings is in a couple days and don't want to risk an upside surprise. Back to GE though, you can see the MACD is turning down, the death cross occurred last week or so where the 50 dma(blue) crossed down over the 200 dma(green) and its still closing below the 20 dma(red). My target here is the sub $14 range on GE. The low a couple weeks ago was 13.75 so if we break $14 this week then I'll tighten my stop, maybe trailstop it. If the 13.75 hits again it would give us about a 50% profit. The current 15 strike put is about $70 and we're looking to make $35 or so quickly for each contract.
I'll try and update tomorrow aftrnoon.
Later.
Trader Dad!

MSFT Follow Up

2010-07-19T21:39:00.003-04:00

Our Put Buy entry of 24.75 was never hit today so our day order was cancelled. MSFT opened slightly higher and closed right around the mid-point of yesterday's selloff. It also closed above the 50 dma(blue line). You'll also notice that the earnings report is this Thursday. This is enough info to stay away from this trade and look for a less risky entry. Chances are earnings won't be great after IBM and Texas Instruments reported but why take the chance. Let's find something else.
Later.
Trader Dad!

Bearish on Microsoft (MSFT)

2010-07-18T22:45:00.004-04:00

So following the same lines as my QQQQ trade I've been posting, I'm seeing the same pattern with many individual stocks. MSFT is one of them. As you can see, it took a dump on Friday with the rest of the market and the previous low a couple weeks ago broke below $23. Since its currently at $24.89, we can probably expect about 2 point drop over the next week or so. So I've got a Put Buy at 24.75 for tomorrow morning. This is .13 below Friday's low. If you wanted a safer entry you could set your entry to 24.60 which is about the 20 day moving average (red line). A couple other things going for us on this trade is the fact that the MACD was overbought and has turned and the 20(red), 50(blue), and 200(green) day moving averages have fanned out slowest to fastest which is a good thing for bear trades. So if we enter at 24.75, the 25 strike would be about $117 with a Delta of $50. So if MSFT dropped 2 points we'd make close to $100 or almost 100%. Not bad, espescially if you've switched to a MAC. Later.
Trader Dad!

QQQQ Trade: 41% in 1 Day!

2010-07-16T16:01:00.004-04:00

So you can see that our Put buy was triggered yesterday at 45.19. This is .05 below the low of the day before. The trigger bought the 1st In The Money Put for about $160 yesterday. Today that Put is worth about $226. That's a $66 profit or 41% profit in 1 day. I'm holding this over the weekend because the last high was a lower high and I think we're headed to at least the $43 range. Depending on how it looks next week I may trailstop it to capture some gains. Here's the profit had you done the exact style trade for the other major ETFs this week. DIA:31% profit, SPY:25% profit, SSO:29% profit.

QQQQ Swing Trade Update

2010-07-13T16:14:00.001-04:00

So QQQQ and the other major ETFs like SPY, SSO, and DIA were all up today. Since I'm still bearish, I'm updating my put buying price on each. On QQQQ, I've got a put buy order for tomorrow .05 below today's low. If the QQQQ drops to 44.75 tomorrow, my order should be triggered. I'll keep updating this each day the QQQQ or the other ETFs close higher. QQQQ is on a 6 day win streak. Let's see how it falls...
Later.
Trader Dad!

Swing Trade Idea: Entry to Short QQQQ

2010-07-12T17:04:00.003-04:00

You can see the nice downtrend from JUN21 to JUL2. You can also see how the Awesome Oscilator started green and turned red during that time. Key point here is the AO isn't a leading indicator. DUH! So how do we use it? So if you look at JUL6, you'll see the price closed slightly higher than JUL2 yet the AO gave us another longer red bar. This is a bearish divergence. So at the close of JUL6, we're waiting for bull reversal. Boom ,next day, long white candle, long green AO bar. So how long will this bullish reversal last? Doesn't matter, we're going to try and catch it when it turns. So the night of JUL7, we place a put buy order if the price drops .05 below the low of the setup candle. In this case, 42.65. Now JUL8 happens, price rises, we don't get triggered. Same thing, the night of JUL8 we place a put buy order .05 below the low of JUN8's candle and so on. So today QQQQ closed at 44.75, with a low of 44.46, So I've got a put buy order on a price drop to 44.41.
Then I wait until tomorrow.
Later.
Trader Dad!

Awesome Oscilator

2010-07-06T22:37:00.002-04:00

So I've been messing around with the Awesome Oscilator. and guess what, it seems kind of, well, Awesome. Over the weekend, I backtested the SSO ETF that tracks the S&P500 and found it pretty useful. Since not one indicator always gives you accurate entry/exit points, I've added a few others that should help other night traders with trading options. Once I do some more backtesting, I'll post some examples with some additional rules. In the meantime my current positions are Short: ERTS, XRT, BP
Later.

GLD call update

2010-06-29T16:22:00.004-04:00

After entering into a long call position yesterday on GLD, the stock opened lower but then reversed midmorning today. Our call option has now broken the 10% profit mark. I think there's more upside to this since gold has been a safety play the last few months and the rest of the market has taken a crap on itself today. There's some heavy resistance though around the $123 range though. You can see a few attempts to break and hold that but all failed. So I'm looking for a break and close above the $123 level. If it hits resistance and starts to reverse, then we will close our position and with a small profit. The target range is the green circle.

BP stock still falling? Hmmmm, wonder why....

2010-06-28T16:18:00.004-04:00

BP's stock started forming a descending triangle on JUN 3. At point 1, BP found support at $29 even and then continued its tightening. At point 2, we got a close below the low of the triangle support. This gave us a clue as to where the next move was. As in most descnding triangles, the move is downard but you have to wait for confirmation. I initiated a position at the end of JUN 24 when I saw the close would be below $29. That put is now up 42% in 2 days. BP opened higher today but the bears pushed it back down. I still think there is more downside on this. Not too hard to come to that conclsusion becasue: IT'S STILL LEAKING LOSERS!!!!!!!

Bearish Trade Setup on Wells Fargo (WFC)

2010-06-24T15:35:00.004-04:00

FYI: You can click on the chart to open a larger version.
Bearish Trade Setup for WFC: Wells Fargo
1. ADX is above 30 indicating a strong trend is in place.
2. WLR setup bar was on 6-21 closing below -80. It confirmed bearish the next day on 6-22 with a close below the previous day's low. This is highlighted with green circles.
Additionally, WFC is trading below the 20 (red line), 50 (blue line), and 200 (green line) daily moving averages. So the plan here is to wait a day or so for the stock to rise back up to the red 20 dma line and then purchase an August put. Currently looking at the 29 strike price in the $2 and change range. Later.
Trader Dad!