Bobby's Trade Journal – It's not the destination but the journey…

Moving to Advanced Option Strategies

When traders start trading options, they learn as much as possible about calls and puts and rush out to buy some contracts hoping for a big move and a big profit. When that doesn’t happen, there’s two possible routes a trader will take. The first type of trader will rush out and buy another contract on something and hope that one is profitable. The second kind of trader will analyze his/her trades and try to determine why it didn’t work. These are the two main possbilities excluding the small variations on these scenarios.

When a trader buys a call or a put and the stock moves away from the intended direction or stays put the trader loses money. In some cases even if the stock moves in the correct direction, the options still loses premium and the trader can’t make profit. Meet Theta. The time decay. The time decay on an option will accelerate as the expiration draw near. Closer to expiration the time decay on an option can be so much as to negate any small move by the underlying in the correct direction. So a buyer is losing money unless the stock makes a good move.

On the other hand, the seller of the option is liking the time decay with each passing day. For a seller the time value of an option is on a one way road. It’s decreasing and never increasing. This means if the seller can sell the correct option and use the correct strike, he or she can be a happy trader at expiration.

This is where a trader must learn new strategies and advanced option strategies that are designed to benefit from certain scenarios. Butterflies, Iron Condors, Condors, Vertical Spreads, Calendar Spreads, etc.

I am moving towards learning about selling Vertical spreads and incorporating this strategy as part of my money making strategy. I will discuss some of the option strategies in the coming posts. I will post more about selling the option premium instead of buying it.

Untradeable Markets

Are the markets becoming untradeable? Everytime I hear pro traders and everytime I talk to others who trade on a daily basis, I hear sentiments such as, “it’s too unpredictable” or “this market is on no volume”, etc.

The market has had low volume, rally mode days, and a whole lot of shaking out stops. Some days the market rallies 100 pts, in the first 30 minutes then hold steady without volume the rest of the day. On some other days, it moves up and down during the day but closes the day almost where it started. In other words, it is getting hard to use technical analysis on many charts. It’s not impossible, but hard.

Consider AIG, it keeps moving up for no reason. Or consider GS. It keeps upgrading stocks to random buys. What is the point? What could google have changed in the last 4 months that GS would think it’s a buy?

Despite all these things, the main thing for a trader is to trade the oppurtunity. If the oppurtunity is for intraday, then trade intraday. If the oppurtunity is for swing trading, swing trade.

Pullback or Rally

The current market is drawing out two strong opinions from the trading and investing group. Some say that it has run up so much, it simply must pullback before further continuation. These are the shorts. They hoping for a short and lower prices before they join the upward leg. The second group is the people who say that market momentum is such that it will continue upwards, no correction necessary.

To confuse the issue more, some expert say this is the bottom, it will go up from here. Other experts say that the market definitely fall lower during the year later on with or without upward move.

One thing is for certain more analysts are joining the upwards move camp with each week.

In the middle of all this where do the normal traders, swing traders stand? It seems necessary to know for the trader, when swing trading, whether the market is headed up or low, so they can trade the right side. It’s easy to tell them, just go with the flow. But if there’s a moderate pullback day such as 100pts down, that trader will lose lot of money betting on the wrong side of the securities. It’s hard to really predict. Unfortunately, many experts have been saying that it’s really hard to determine the direction. They say it could go either way. But the investors and traders are watching the prices rise everyday a little more and good oppurtunities are going.

Hopefully, a clear direction will emerge. At the time of this writing, I’m slightly bullish. In other words, I have a bullish position on one stock. I’m not against taking bearish position on other stocks at the same time. Even when the stock is big and moves with the indexes.

How about F?

So F has been recently going up nicely. It had a sharp pullback today. F announced that they’ll raise 7 billion thru share sales to get money for health cost… probably for employees.

New Year, New Trading Resolutions

So the new year has officially started with the market running on the 2nd. This late rally can be called many things. Bear market rally, Santa Clause Rally, January Effect, and other names involving existing or non existing characters. That means it unclear which way the markets will trend. If they’ll trend, that is. The market may just stay in a range for a little while before defining a direction.

This means to a daytrader that they will have to start monitoring closely to see if the market is range bound or starting a trend. Depending on that, a daytrader will have to use the correct strategy.

Additionally, many securities are running on their own a little and not mirroring the DOW. Which is good and bad. It’s good for those that may find a good trend and benefit. It’s bad, because it may not help identify a trend early enough.

Leaving all the market stuff aside, it’s a good time at the beginning of the year to sit down and make some trading decisions. The last year has been educational. I will be refining my trading rules and will be defining a clear risk management strategy for my trading in the coming year.

Merry Christmas!

Merry Christmas to all!

Dow Analysis – One Last Time Till Next Year

So let’s see what the DOW has been doing. It’s been sort of going up and down which is somewhat usual. But it seems to be forming patterns breaking either to the upside or the downside. This is confusing for a regular technical analysis using trader. Not only that but it is confusing for the investors. Investors can’t decide if these are the best price or if it will get better. Traders can’t decide if it will go up or down. Without all of this, you’ll see uncertainty and restlessness in the markets. Which is the usual activity lately.

For the DOW, big support around 8300. Big resistance at 8900. Likely direction is down. Even tho, this is after the fact since we’ve had one more trading day since I did this analysis. And today’s action was lower. But this is the analysis that I had done on 19th.

Short term stochs diverging down. MACD still in higher highs mode while index is in same highs which is not higher highs. The RSI has been also flat in the highs. This is fairly confusing. Not a trade worthy environment. I will lay off until the next year.

I may monitor the markets and if I see something really interesting, I may invest or trade a little. But for the most part, I will wait until the new year.

Also let’s see the Fib’s on the DOW.

So This Wasn’t a Real Moving Day

Not much happened. In main news, the GS and MS earnings were bad and the market decided to rally anyway. Those two stocks gained big gains anyway. Now what? Maybe some relief on those? I’m holding one GS 55 call. It’s at 78.

Anyway, the DOW is no longer going in a descending triangle only. On a smaller timeframe there’s an ascending triangle, as well. 8950 will be the main resistance point. There has been 4 days of touching that line. Two opening from that point and two closing at that line. Slightly below average volume. Mostly decent volume activity. RSI is over 50. MACD heading up. Stochs pointing up.

This is the Expiration week for options. That might help with sudden moves. It might yet fall considerably on Friday. It migth simply keep going up. This market has been very unpredictable in the many moves.

And market recap for indices.

That Was Totally Uncalled For!

Well, it wasn’t so much uncalled for, as it was unexpected! It’s just odd. GS reported $2 billion loss and first loss ever since going public. What was the market response? It just pumped the stock up. The stock just went up $9.54 (14.35%). That’s just unexpected. Oh well, it is supposed to retrace a little tomorrow.

Additionally, looking at the DOW, another higher low has been put in. This market has been pretty well desensitized to “negative” news in the financial sectors. Wall street messed up! Banks made big boo-boos. Auto makers have been doing the same ole same ole for a good while. And a 8 year old shot his grandmother. Well, not really, but after a while people get tired of just constant “negative” news. People will eventually step up and say that they don’t care they’ll just buy something at these prices and hold. And more investors will start coming out of the woodworks. Let’s see the DOW chart.

We’ve started and ended from and at the 8550 level for 2 days each for a total of 4 days showing good support on that level. Hopefully, it will hold. If not, the 8380 level will show good support. Notice strong down days only have fewer candles. And if there’s more, they’re smaller. Up days have been nice and big candles lately. That should mean good news. Should being the operative word here.

Let’s see the 300+ pointer day. It was something that wasn’t expected. Otherwise, I would have gotten some calls on something. Or puts on SRS. Currently, I’m holding one BAC put and one AAPL put. Both are unprofitable.

Is This Another Down Week?

Let’s see, the DOW didn’t do any dramatic thing. Down 65 points. The volume is decreasing. A previous down line was broken on 8th of December and the candles has been above that line. A new trend line is holding. The DOW is between 50MA and 20MA. It has been bouncing off the 50MA for a while now. And it has stayed above 20MA for a good 6 days. Could this mean a possible reversal? Or a consolidation before falling below. If it move down, it would probably easily go around 8380 line and stay. If it breaks more, it might go to 8180. But more down move doens’t seem very likely. It might go up a little, then make a down leg.

With the options expiring this week, it becomes very important to know and understand and predict correctly which way the DOW will move. Some moves might be over amplified. For example, today’s end of day spike was very noticeable and inexplicable. No news around the time. I looked online to see if there was some announcement but nothing.

It might continue down tomorrow, move up Wednesday and then down the rest of the week. That’s a wild guess and anybody who has monitored the market long enough knows there is simply no way to predict the moves. The best we can do it is:

To be ready for the move.
To recognize it.
To use the short term trend and make money.
To have funds available to play.

And today’s market recap.