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Aug 30
2011
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Expanded SPY Trading thoughts & Outlook AheadPosted by: Stan Moore in Stans Blog on Aug 30, 2011 Tagged in: Untagged
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Dear Friends & Fellow Traders,
The economic news was generally poor as expected all week but the markets took that in stride after the huge sell-off retest failure of the previous week’s lows. We generally do not care about the news; we only care about the market's reaction to the news.
There is a lot more data coming out that should drive markets this week too. Again most of it will not be any good from reading the early guesstimates of our leading Wall Street economists. Remember most of these “great” thinkers in the past have predicted 9 of the past 5 recessions. We got no help from Jackson Hole and like BB, Trichet and Lagarde gave us little help with their speeches either. No one provided any immediate stimulus. Government interventions at all levels around the world have shown to be ineffective so far. Even the Greek bailout is back in the news with some new warts.
Still the markets rallied nearly 5% after last week as our stock markets absorbed quite a bit of selling these past few months. If there's one thing I've learned in all my years it's not to try to beat but to tag along with “They”, AKA the Trading Gods. Reminder these Gods will always do what they have to, to screw most of the traders most of the time.
So, what do I recommend for a trade last week? Place a SPY weekly put spread. The Gods read that and immediately rally the markets. However, we got lucky because our spread executed at a $0.85 debit and not $1.20+. That joy last all of a day because the markets retest the lows and then goes sharply higher. However, these Gods forget because NET traders can hedge. I will go into these trades a bit later below. Suffice it to say if you did nothing last week you lost $0.85 on the puts. However, Friday morning when the market sold off after BB's speech. The SPY 111 puts could have been sold for as much as $0.40 greatly mitigating the loss. Up until Friday afternoon, all our stocks were having a great week in the rally. CIGX was a shocker to say the least.
Trades of the Week in Review
There was a gap opening Monday letting us open the recommended put spread trade for a $0.85 debit. If the market decline continued lower to 1050 throughout the week we were risking $850 to make $5,150 for 10 spreads. Nevertheless, if you did nothing you lost $850 by Friday's expiration.
Given the current market volatility I'm exploring new trading opportunities with the SPY (500 Spiders). I've attached the Friday 30-minute chart, NET Weekly Money Chart 2011-08-26-D, for our study. NET traders have learned there are more ways to trade options as a cat has lives. We can enter hedges simultaneously. That's what the opening trade assumed above. We can leg-in. For example, Monday morning we can buy the 111 strike SPY puts at $0.85. Then later in the day and 20+ points lower we could have sold the 105 Strike OTM puts for as much as $0.61 or only a $0.24 debit. Better yet we could have sold the 111 puts for $2.00 a few hours later.
Let's run through a few more choices we have. For a better part of Monday we spent most of the time at the outer 2.3 Uni bands. These bands contain 98% of the price action. Still how do we know that price will reverse off the bands. We will never know for sure but NET traders know that when we had Leading Divergence on the 30-minute chart (we had 2 that Monday). There is an 85% chance the lows are in. If we already have the put spread on we can hedge by going long 2 S&P E-mini futures contracts. The contracts rally 6 points into the close for a $600 profits. We're almost home. If margin isn't a problem stay long. The puts are your protection. If margin is a problem go long 2 more in the overnight session. The market is up over 20 E-mini points by 12:00 and we're at resistance. Sell them and put $2,000 in the bank. Let's assume we don't re-enter the long again until 12:00 the next day (see Wed’s hedge comment) we get long for another 20 points into the close. Put another $2,000 in the bank.
Let's see, made $4,600. Now look to sell the long puts into weakness or add some new puts into strength. By now our put trade is too far OTM to use for hedging protection. Behold!! The market Thursday morning gaps right into a Tenet # 3 sell .area, the 20DMA and an 80% sell retracement. We can now buy some 117 OTM puts for as little as $0.53. Friday morning, if not hedged or if one hadn’t sold as I did Thursday afternoon then the puts could have been sold for as much as $3.20 Friday morning.
There is another cheaper margin requirement option instead of adding E-minis into the mix. This idea of buying offsetting options I like even better because my risk is fixed to the price I pay, in this case, the call option. The SPY OTM 115 strike is only $1.00. Buy 10 for $1,000. These SPY option trade like water versus the OEX weeklys which hardly trade. To make a long story short we could have sold the 115s for as little as $3.00 Wednesday or as much as $4.50 Thursday morning. Either trade worked well.
Friday morning on weakness we could have bought the OTM 117 SPYs at $0.53. These calls traded as high as $3.50. Just an aside, right at the top we shorted the market in the Chat Room at the 20DMA again. One bright participant doubled his money on an OTM put purchase at the same time. It was just another day at the ranch.
I don't know of anyone who did all these trades but they were there and identified mostly as E-mini trades in the Chat Room. I’ve looked at both these SPY and OEX trades for a few weeks now and I’ve come away with a few thoughts:
In conclusion Regarding Trading Options
If I use OEX options I will only trade long options against E-minis. However, I'm inclined, given the cheapness (price only) of the SPY, to leg into spread trades once the trade goes in my direction and even place an option trade on in the opposite direction as well. This strategy can work better earlier in the week. This opens up hedging and parlaying to any size account out there now. Still, one needs least $10,000 to start. Believe it or not I'm looking at another put spread this week. I may try to leg-in on this one to lower our costs.
All traders need to become more proactive than ever before if we're to make a great living and build real wealth in today's markets. See further thoughts on this matter below with CIGX. As for me, I truly believe that this economy is still growing and we are not going into a recession. The Fed has plenty of ways to help Obama even if he can't get his act together. I also believe that oil prices for the foreseeable future will moderate and hold inflation down giving the Fed more room to act more aggressively.
On being more Proactive in our Trading
I have a bit more work to do on CIGX regarding the 'Tobacco lottery' ticket and who they can or cannot sue. That's still out there. It's still huge but more time will have to pass. The good news is that I expect product sales will start sooner than later and there should be a minimum of share dilution to fund any of their future products.
I love trading stocks under $2.00 for a living. I've found 2 great one's in "my golden" years. BTX took 4 years before the stock went from $0.30 to nearly $10. I was the BTX specialist for 2 years before anyone paid any attention, even Cox. HUN, Huntsman, took only 2 years to go from $2+ to $21 but there were tens of $1,000s in trading profits per trade before the case was settled. We just bought $0.20-.30 dips and sold rallies for months on end. I still sell puts on weakness here. Checkout my old blog entries for the specifics.
CIGX can now become a money machine like any other I've ever traded. Unless CIGX and Cox are total frauds CIGX someday soon will have exploding sales of so many different products I don't know where to begin so I won't. We can now trade a $1.60 stock, sell calls on strength and sell puts on weakness. I just sold 115 calls the other week I previously mentioned out to Jan 2013 with a $4.00 strike for $1.25. They're now $0.40 bid. To balance that off I sold 100 puts Jan 2013 $3 strike for $2.07 Friday on the current weakness. I'll own CIGX under $1.00 and so on and so on.
Yes I'm hurting here at this lower market level. I have a large number of $4 and $5 strike calls. I just wanted premium in case. Well, that in case happened. These calls will expire worthless unless we get a miracle. I will now buy stock down and sell OTM calls into strength. If I'm exercised who cares. I made money. If the stock trades near $1.50 or lower I'll sell all the $2.00 and $3.00 ITM puts they want and use the money to buy more common and sell more calls into strength. I can see this happening for the next 6 months.
Keep those cards and letters coming. Even call me with any questions.
Good trading,
Stan Moore
702.558.1814
The economic news was generally poor as expected all week but the markets took that in stride after the huge sell-off retest failure of the previous week’s lows. We generally do not care about the news; we only care about the market's reaction to the news.
There is a lot more data coming out that should drive markets this week too. Again most of it will not be any good from reading the early guesstimates of our leading Wall Street economists. Remember most of these “great” thinkers in the past have predicted 9 of the past 5 recessions. We got no help from Jackson Hole and like BB, Trichet and Lagarde gave us little help with their speeches either. No one provided any immediate stimulus. Government interventions at all levels around the world have shown to be ineffective so far. Even the Greek bailout is back in the news with some new warts.
Still the markets rallied nearly 5% after last week as our stock markets absorbed quite a bit of selling these past few months. If there's one thing I've learned in all my years it's not to try to beat but to tag along with “They”, AKA the Trading Gods. Reminder these Gods will always do what they have to, to screw most of the traders most of the time.
So, what do I recommend for a trade last week? Place a SPY weekly put spread. The Gods read that and immediately rally the markets. However, we got lucky because our spread executed at a $0.85 debit and not $1.20+. That joy last all of a day because the markets retest the lows and then goes sharply higher. However, these Gods forget because NET traders can hedge. I will go into these trades a bit later below. Suffice it to say if you did nothing last week you lost $0.85 on the puts. However, Friday morning when the market sold off after BB's speech. The SPY 111 puts could have been sold for as much as $0.40 greatly mitigating the loss. Up until Friday afternoon, all our stocks were having a great week in the rally. CIGX was a shocker to say the least.
Trades of the Week in Review
There was a gap opening Monday letting us open the recommended put spread trade for a $0.85 debit. If the market decline continued lower to 1050 throughout the week we were risking $850 to make $5,150 for 10 spreads. Nevertheless, if you did nothing you lost $850 by Friday's expiration.
Given the current market volatility I'm exploring new trading opportunities with the SPY (500 Spiders). I've attached the Friday 30-minute chart, NET Weekly Money Chart 2011-08-26-D, for our study. NET traders have learned there are more ways to trade options as a cat has lives. We can enter hedges simultaneously. That's what the opening trade assumed above. We can leg-in. For example, Monday morning we can buy the 111 strike SPY puts at $0.85. Then later in the day and 20+ points lower we could have sold the 105 Strike OTM puts for as much as $0.61 or only a $0.24 debit. Better yet we could have sold the 111 puts for $2.00 a few hours later.
Let's run through a few more choices we have. For a better part of Monday we spent most of the time at the outer 2.3 Uni bands. These bands contain 98% of the price action. Still how do we know that price will reverse off the bands. We will never know for sure but NET traders know that when we had Leading Divergence on the 30-minute chart (we had 2 that Monday). There is an 85% chance the lows are in. If we already have the put spread on we can hedge by going long 2 S&P E-mini futures contracts. The contracts rally 6 points into the close for a $600 profits. We're almost home. If margin isn't a problem stay long. The puts are your protection. If margin is a problem go long 2 more in the overnight session. The market is up over 20 E-mini points by 12:00 and we're at resistance. Sell them and put $2,000 in the bank. Let's assume we don't re-enter the long again until 12:00 the next day (see Wed’s hedge comment) we get long for another 20 points into the close. Put another $2,000 in the bank.
Let's see, made $4,600. Now look to sell the long puts into weakness or add some new puts into strength. By now our put trade is too far OTM to use for hedging protection. Behold!! The market Thursday morning gaps right into a Tenet # 3 sell .area, the 20DMA and an 80% sell retracement. We can now buy some 117 OTM puts for as little as $0.53. Friday morning, if not hedged or if one hadn’t sold as I did Thursday afternoon then the puts could have been sold for as much as $3.20 Friday morning.
There is another cheaper margin requirement option instead of adding E-minis into the mix. This idea of buying offsetting options I like even better because my risk is fixed to the price I pay, in this case, the call option. The SPY OTM 115 strike is only $1.00. Buy 10 for $1,000. These SPY option trade like water versus the OEX weeklys which hardly trade. To make a long story short we could have sold the 115s for as little as $3.00 Wednesday or as much as $4.50 Thursday morning. Either trade worked well.
Friday morning on weakness we could have bought the OTM 117 SPYs at $0.53. These calls traded as high as $3.50. Just an aside, right at the top we shorted the market in the Chat Room at the 20DMA again. One bright participant doubled his money on an OTM put purchase at the same time. It was just another day at the ranch.
I don't know of anyone who did all these trades but they were there and identified mostly as E-mini trades in the Chat Room. I’ve looked at both these SPY and OEX trades for a few weeks now and I’ve come away with a few thoughts:
If the volatility remains high, the VIX is over 35, start using more SPY trades.
Conversely, trade the OEX. In both cases the returns are identical.
Conversely, trade the OEX. In both cases the returns are identical.
In conclusion Regarding Trading Options
If I use OEX options I will only trade long options against E-minis. However, I'm inclined, given the cheapness (price only) of the SPY, to leg into spread trades once the trade goes in my direction and even place an option trade on in the opposite direction as well. This strategy can work better earlier in the week. This opens up hedging and parlaying to any size account out there now. Still, one needs least $10,000 to start. Believe it or not I'm looking at another put spread this week. I may try to leg-in on this one to lower our costs.
All traders need to become more proactive than ever before if we're to make a great living and build real wealth in today's markets. See further thoughts on this matter below with CIGX. As for me, I truly believe that this economy is still growing and we are not going into a recession. The Fed has plenty of ways to help Obama even if he can't get his act together. I also believe that oil prices for the foreseeable future will moderate and hold inflation down giving the Fed more room to act more aggressively.
On being more Proactive in our Trading
I have a bit more work to do on CIGX regarding the 'Tobacco lottery' ticket and who they can or cannot sue. That's still out there. It's still huge but more time will have to pass. The good news is that I expect product sales will start sooner than later and there should be a minimum of share dilution to fund any of their future products.
I love trading stocks under $2.00 for a living. I've found 2 great one's in "my golden" years. BTX took 4 years before the stock went from $0.30 to nearly $10. I was the BTX specialist for 2 years before anyone paid any attention, even Cox. HUN, Huntsman, took only 2 years to go from $2+ to $21 but there were tens of $1,000s in trading profits per trade before the case was settled. We just bought $0.20-.30 dips and sold rallies for months on end. I still sell puts on weakness here. Checkout my old blog entries for the specifics.
CIGX can now become a money machine like any other I've ever traded. Unless CIGX and Cox are total frauds CIGX someday soon will have exploding sales of so many different products I don't know where to begin so I won't. We can now trade a $1.60 stock, sell calls on strength and sell puts on weakness. I just sold 115 calls the other week I previously mentioned out to Jan 2013 with a $4.00 strike for $1.25. They're now $0.40 bid. To balance that off I sold 100 puts Jan 2013 $3 strike for $2.07 Friday on the current weakness. I'll own CIGX under $1.00 and so on and so on.
Yes I'm hurting here at this lower market level. I have a large number of $4 and $5 strike calls. I just wanted premium in case. Well, that in case happened. These calls will expire worthless unless we get a miracle. I will now buy stock down and sell OTM calls into strength. If I'm exercised who cares. I made money. If the stock trades near $1.50 or lower I'll sell all the $2.00 and $3.00 ITM puts they want and use the money to buy more common and sell more calls into strength. I can see this happening for the next 6 months.
Keep those cards and letters coming. Even call me with any questions.
Good trading,
Stan Moore
702.558.1814