How to Trade E-minis & Index Options in Low Volatility Markets

Fellow Friends and Traders,

The beat goes on every day. Don't try to find the top or it will cost you 1,000s of $s in lost put premiums. We found a one day top back a few Fridays ago on January 28th and it was possible to make 20X in a few hours but then it reversed the next day and was off to the races again.

CNBC has told us this week there has been only 1 day in the last 5 months where the S&Ps moved more than 2% and that was 1/28/11 and only 14 2%ers in the previous 5 months. That's zero volatility as far as I'm concerned. So far this year over 65% of the trading days have been up with an average gain of just over 0.2% or about 3 E-mini points a day. Yikes! It’s not as much fun as it could be.

What would E-mini traders give for those 20-25 point swing days of the past few years? In the past, trading was profitable with an average profit at 4-5 points. Your entry and exit points were more loosely defined. We traded fewer contracts. Today, we have to be much more precise in our entry and exits and then to make the same $s we have to trade more contracts in this lower volatility by technically increasing our risk exposure with more contracts.

Just a few weeks ago I sent out a great teaching/training E-mini hedging video to all of you. There are another 100+ hours of various training videos on my site. I fully believe that I can teach a trader, just trading hedged positions between the E-minis and index options using the lessons from my latest book, The Definitive Trading Bible. (You call also call this tome or Everything you ever wanted to know about trading S&Ps and index options but didn't know what to ask.) And, how to increase the size of their trades while cutting back on risk. These trades can earn a possible 4 figure average return nearly every week with only a $35,000 account. Most likely this 4-figure return can be earned in only 1 day each week.

Yes, intraday S&P trading is legal but it's just not fair. You're up against the best and the brightest minds in the world. I was a Wall Street insider and it still took me over 10 years to truly learn the game. I finally realized over 20 years ago when I wrote my first book that the S&P movement was then and still is today not random. There is a natural order to trading the S&Ps. Just learn to trade in harmony with what the S&Ps are telling you. A good poker player will tell you look for the "tells" in your opponents. The S&Ps are no different as there are many tells every day.

The secret to trading success with the S&Ps and index options is rather simple. There are only a few things the market can do. Markets can stand still - highly unlikely.  That simple statement is more profound than you may realize. Go to www.NewEraTrader.com and read the student testimonial letter on the first page. Find the part where the seminar’s moderator and I talk about a trade setup. See what I recommended to handle his bullish stance and my bearish position. Read what happened live in front of 200 traders. That same evening I spent 15 minutes on his radio talk show explaining just what the heck I was doing that made 9X what a trader was risking if the market had traded flat the next few hours. I can count on both hands the number of times that the market has held steady over the last 20 years. Back then my answer was 8 and, now it’s only 9 five years later.

To continue, markets can go up or down is only stating the obvious but if you can come to understand what the market is telling us you know what the market should do. From a certain formation, time, retracement or say a double top or double bottom the market should do "X" and then it does "X" that's great so we go along for the ride. However, if the market does something else that's also telling us something as well and signals a coming directional change which I will touch on in the new video.

Don't try to force your thinking onto the markets. You will lose a lot more then you will ever win. Respect the professional, heavily fund traders (AKA the Trading Gods?) as they love torturing traders and extracting their funds. These Gods, I truly believe will do whatever it takes to screw most of us traders most of the time. As the good police desk sergeant said on the old TV-series Hill Street Blues as he sent his shift out to work, "Be careful out there." I say arm yourself to the teeth to beat them. This can be the greatest game in the world once you know the rules and thank the sheep that often get slaughtered.

Once you come to understand this "rhythm" it’s possible to earn substantial $s trading larger positions with smaller risk in these 2-4 point intraday trading ranges over a few days a week. I will be making another video about today's trading and bringing together all the necessary tools you have at your disposal to enable you to master this game. See Friday’s 5" intraday chart, the NET Weekly Money Chart 2011-02-18. Here’s the video link.

This week's hedged E-mini long and long put trades were one of many that can be taken almost every week. There are a few ways to get into these trades. Personally, I like to leg-in one side first and build size. Next, we can do both sides simultaneously. I started Friday’s Alert Emails with a 600 strike put purchase recommendation at the opening price of $0.65 near Thursday’s high. NET traders were to get long puts scaling in lower [They hit $0.35-.40 within the first hour.] and work to get long E-minis. I noted in another Alert Email we'd mostly end up with a simultaneous hedge.

In the Chat Room I recommended early purchases of the E-minis near 1337-38 and adding more aggressively as it was becoming apparent we would be breaking out to new highs. We added more longs at 1339 and bought a lot more on the break through 1339.75-1340.00. The puts came in easily at $0.40 in size between 10:30 and 11:30. By 12:30 we were making higher highs and lows.

Although I teach traders to think in terms of trading at least a minimum 10 option contracts at a time, let's just say we were long 50 E-minis near 1339 and long 100 puts at $0.50. At the day's high of 1343 NET traders were up 4 points or $10,000 on the E-minis and down $0.20 or $2,000 on the puts. In the Chat Room I suggested we sell most of the E-minis to lock-in a guaranteed profit or at least pay for the puts. We could have closed out the entire trade then but there were over 3 hours left with more hedging/parlaying opportunities ahead.

There were other reasons to take profits all of which I can cover better in the video - I type with 1 finger but I can talk a lot faster. There was an earlier recognition close to the high near 1:00 a trade setup was setting up to go higher from a certain time and formation. We failed and the market made new intraday lows 2 hours later. Those damn Trading Gods screwing with us again. See more below about the Trading Gods.

Doing a trade near the highs would have netted over $9,000 if the longs were sold out and more puts were purchased with some of the profits near the lows of $0.25-.30. Two hours later the 600 strike puts were trading at $0.70. We could have made another $5,000-10,000 profit there. However, I did recommend in the Chat Room to use these now ATM puts to re-hedge with long E-minis again as the better trade. Let's say we bought another 60-75 E-minis at an average price of 1337 against our 130-50 long puts. Personally, I must say I sold my E-minis out way too soon as the E-minis closed out at 1343 right back at the highs of the day.

Yes, the puts cost $0.40 and we lost $5,000-$6,000 on them but the long (average) 70 E-minis made over 5 points or about $16,000 less $6,000 (the put loss) left us with almost $20,000 in profits on an investment initially requiring $5,000 for the 100 puts and $25,000 for the 50 E-minis. I did leave a few pennies on the table. I'd say we're well on our way to averaging about $9,000 a week.

Please watch for the video when I send it out later this week. I cannot do justice to this trade in the time and space I allot to this blog.

BTX Update

I am awaiting the BTX 4th quarter results and comments to decide what to do with BTX call options. Right now, I'm down over $0.60 on a large number of March $0.70 calls. I never did get to fully hedge them with the March or February 10s. I believe the stock will stabilize somewhere near the $7.00 but I will still sell the calls on any strength back over $0.70 and revisit the situation at that time. In hindsight I wish I just sold the stock and waited as BTX has dropped nearly $2.40 from the high.

Right now the shorts may be winning a battle but Dr West assures us they will not win the war. This is the 4th time in the last 2 years BTX has corrected at least $2.00 from a new high only to go on to higher highs later.

Have a great holiday weekend and keep those cards and letters coming. I read ever one.

Good trading,

Stan Moore

702.558.1814

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