For the first time in a while I did some options trading this week. Here is my process: Find a chart that looks good. Formulate a hypothesis. Purchase option at the money or in the money two months out at the very least. Set intelligent stops to limit losses. Wait and see.
On Tuesday of this week I thought the chart for ABX looked good for shorting. My hypothesis was that ABX would fall from $38-39 to about $32 in about a week or so. I purchased two ATM puts on Wednesday. I set my stops at $39.69, the high for past couple of days. Then I did not have to wait long. ABX fell %14.53 in a day! I sold one option when ABX was down %10 and the other option when ABX was down %14.
Totally awesome
If you’re a trader, Gold Stock Bull lists three areas where one should probably be able to profit: financials, the dollar, and energy. With energy, Petrobras is the particular stock mentioned right now that seems to be a both a good trading and investing opportunity.
I also agree with the general outlook on energy. Oil was greatly overvalued, but now it seems that there has been an over-correction. But perhaps not, as I have been hearing that there is some evidence of a greater worldwide economic slowdown, and thus a decrease in demand for energy.
Currently, by the RCP Average, Obama is expected to take 46.8% of the vote and McCain 42.8%, which means there is a spread of 4 points. However, at Intrade, Obama is trading at 63 and McCain at 33.5, a huge spread of 29.5 points.
Here are the intrade charts:
If I were a betting man, I would bet that this spread will narrow as Novemeber approaches. I bet if you sold Obama and bought McCain, you’d be able to make a nice profit when you cash out a week before the election. Of course, this idea works best if McCain can make it to the election still alive. If McCain didn’t make it to election day for some reason, you’d have a big loss on your hands.
It was a long weekend for me. Drove up to Chattanooga, Tennessee with three of my teammates to compete in some bicycle races. Here are two charts that look good to me.
This is a chart of BUCY. I like it because it looks as though it is topping out and it is also very close to the top of its trend channel. Intermediate target price is $85.31 and longer term target would be approximately $67.
This is a chart of PCP. It’s broken several trend lines and I expect it to go lower. I know nothing about this company at all, but just going by the name, it seems to be involved in manufacturing precision castparts. With a global economic slowdown currently underway, I suspect demand for such things will fall. First target price is around $92.50 with a long term target of $75.
I sold into the strength yesterday, perhaps a little recklessly considering how utterly unpredictable the market has become, but I saw two charts trading at or near the top of trend channels and the third trade was in response to the retail sector’s large bounce after Walmart’s report.
Here we have DVN, at the top of its trend channel.
Here is a chart of Medtronic, MDT. Not a terribly strong stock, nor at a very extreme level, but I still thought it was worth a shot.
This is RTH, the etf for the retail sector. I had a put previously, but sold for a profit at 92. I thought yesterday was a good chance to reload.
When I read the news that J.P. Morgan had upped its bid for Bear Stearns from $2 a share to $10 a share I felt like I would be one of the few who would consider such news BAD, as opposed to GOOD. If JPM had to be bribed to take on Bear Stearns assets, why would paying more be a good thing? And by the way, JPM is now on the hook for just the first billion in losses that might occur from Bear Stearns assets. Formerly, I think JPM was on the hook for zero losses.
Anyways, I just want to show you this chart of JPM with its insane megaphone. I was short JPM as of yesterday.
This was one of the most volatile weeks I had ever seen in the markets. This might have a little to do with me being on spring break and therefore was able to watch the markets in more detail, but probably more so to do with these troubling economic times. With only four trading days this week, we saw hundred point gains and losses every single day I think.
Here’s the intraday chart of IWM, an ETF that tracks the Russell 2000 index, that shows the index bouncing and bounding across the intraday fib lines:
It’s really uncanny watching streaming quotes of the market and see the prices of stocks bounce off of and hover around the retracement lines. But anyways, it seems that the market is finally going for a rally after nearly 4.5 months of decline. Money is getting sucked out of leveraged positions in commodities and being put back into securities. One example of this I think is General Electric (GE).
GE had an huge day yesterday, making a 5% gain. For this week, GE went from a low of 32.83 to a high of 37.74. And just look at the huge volume on Thursday. GE has NEVER seen volume like that ever. I actually bought a put on GE, but if the market movers are getting back into GE, that might not have been the wisest decision. But in my defense, I bought the put as GE was pushing up against the 38.2% fib line. The stock moved up past that but now its cozying up to another point of resistance as you can see from the blue line.
Here is a chart of Dynamic Materials Corp (BOOM).
There may be a slight bounce this week, but I feel the trend is down just looking at the indicators. A test of the 200 DMA is very likely in my mind.
And here is a ginormous chart with additional annotations.
Things to notice on this chart:
- the stock seems to have paused in the middle of its trend channel
- the stock seems to have made a 2nd lower high since December ‘07
- MACD looks crossed over
- SS is already pointing down
- RSI sloping downward
- you may infer what you will from the two Fibs I’ve drawn
Based on all the above factors, I would buy puts or short this stock on any upside this week. My stop would be at 59.82.
The earnings season is upon us once again and it seems that the markets will be moving steadily up once again and that traders are going to be more trusting of the general markets. Certainly the housing and sub-prime sectors are still causes for worry, but I think we are nearly to the point of getting over both those issues. Continue reading ‘Earnings Season and Update on Three Holdings’
