Archive for April, 2009

Last week, we discussed the short straddle.  This week, we will cover its’ ‘kissin Cousin’ the ‘Short Strangle’.  The position is comprised of two legs 1) a short put and a 2) short call, both placed out of the money with two weeks or less until expiration.

The trade banks on low volatility and time decay.  You can think of the trade as an Iron Condor with no wings.  There are no protective long options to limit risk on either side of the trade.  The maximum reward is the credit received and the risk is unlimited. 

Review the risk graph and you should gain a solid understanding of the risk and reward in the trade.  Best, Robin

ECONOMIC REPORTS

MONDAY 4/20

Leading Indicators

TUESDAY 4/21

None

WEDNESDAY 4/22

Crude Inventories

THURSDAY 4/23

Existing Home Sales

FRIDAY 4/24

Durable Goods, Durable Orders Ex-Auto, New Home Sales

 

 

EARNINGS OF NOTE

MONDAY 4/20

BAC, BSX, BRO, CNI, LLY, HAL, HAS, IBM, SYK, TXN

TUESDAY 4/21

AKS, ALTR, BLK, EAT, BRCM, COF, CAT, COH, CREE, DAL, DD, FRX, GILD, HCBK, JCI, KEY, LMT, MAN, MRK, EDU, NSC, NTRS, SNDK, SGP, STX, STT, KO, TUP, USB, UAUA, UTX, USG, YHOO

WEDNESDAY 4/22

MO, AAPL, ASIA, T, AXYS, CMG, CAL, EBAY, EFX, FCX, GSK, IR, KMB, NITE, MCD, MS, NE, NOC, NVLS, OSTK, PFS, QCOM, R, SNA, STJ, STLD, TROW, BA, VMW, WFC, YUM

THURSDAY 4/23

ALK, AMZN, AXP, AMGN, AN, BLL, BDK, BUCY, BG, BNI, CP, CME, CB, CIT, COP, CS, DECK, DV, DO, EMCI, FITB, IBKR, IGT, JNS, JBLU, KLAC, MAR, MSFT, NFLX, NVS, NUE, OXY, PENN, PEP, PM, PNC, POT, RMBS, RTN, SU, SVU, CAKE, HSY, TRAD, UPS, LCC, GRA, ZMH

FRIDAY 4/24

MMM, ACI, F, HON, SLB, XRX

 

Several stocks are now trading above their 200 day simple moving average.  This is a key support/resistance level that is closely watched by institutional traders.  As we continue higher, there will be more stocks pushing past this level. 

An ideal setup for a long entry is when the stock pulls back to test the 200 SMA once it has moved through that area.  Old resistance will become new support, but before trading higher, the stock will usually come back down to test the 200 SMA to confirm support.  At that point a long entry is warranted.

In general, a good rule to follow is not to purchase stocks that are trading below their 200 SMA.  Granted, right now that is not a very large universe.  When coming off of a bottom like we are currently doing, this rule is waived.  However, in a normal market, the aforementioned rule is a good one to pay attention to.  We will begin to see more stocks moving above their 200 SMA and retesting that moving average.

  It would be considered a very bullish confirmation when the 50 day SMA moves from below to above its’ 200 SMA.  When the major indexes exhibit that pattern, you can be comfortable that we are solidly back in a bullish bias market.  Typically, 70-75% of stocks will follow the major index trends.  Stay long until the 50 day SMA crosses from above the 200 day SMA to below.  At that point go to cash / bonds or short the market.

Make sure that you do your own due diligence and that you diversify your holdings.  Best, Robin

 

 

 

  

 

Guy Cohen Interview

Guy Cohen is the creator and originator of Flag-Trader

as well as being the author of two best selling books

published by FT Prentice Hall, with a third to follow in 2009.

• Options Made Easy
• The Bible of Options Strategies
• Volatility Made Easy (2009)

Quote from Robin : “I strongly endorse Guy Cohen’s ‘Flagtrader’ system because 1) it works and 2) he cares to really make a difference for his students. In that respect, no matter how well known Guy is, I wouldn’t recommend him unless he held the same beliefs that I and my trading partners do. That belief is to offer the highest quality products delivered with great support and the sincere desire to help. Best, Robin  “  Read Robin’s entire post here

Click Below for Audio

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OTHERS HAVE BEEN CALLING FOR A RETRACEMENT TO RE-TEST THE LOW FROM MARCH 6TH, HOWEVER, ROBIN HAS BEEN CONSISTENTLY AND ACCURATELY PREDICTING THE MARKET AND HE CALLED FOR A CONTINUATION OF THE RECENT BULL RUN.  ”I GOT THE DIRECTION RIGHT LAST WEEK BUT THE MAGNITUDE OF THE MOVE WAS NOT QUITE THERE.  I KNEW THAT FOR THE MOST PART, THERE WOULD BE LOW VOLUME DUE TO THE SHORTENED TRADING WEEK AND AS SUCH IT WOULD BE MORE DIFFICULT TO MAKE THE ENTIRE MOVE UP TO RESISTANCE LEVELS.  WITH EARNINGS SEASON KICKING INTO GEAR NEXT WEEK AND EVERYONE BACK FROM THE HOLIDAY WEEKEND WE SHOULD RESUME OUR MOVE HIGHER.” 

Last week’s comments published on 4/4/2009:

DOW:  “I feel we are still going up with my first target at 8315 and then 8405”

SPX:  “We will continue to rise to challenge 875”

COMPQ:  “The COMPQ is going up to challenge 1666.”

Monday, Mike Mayo an analyst with Calyon Securities downgraded the financials with his “Seven Deadly Sins of Banking” and the DOW closed down 42 points.

Tuesday kicked off earning season with the likes of AA and MOS.  GM is looking to file bankruptcy and AIG was shopping their asset management business as the DOW continued yesterdays’ decline by falling another 186 points.

Wednesday, the Treasury opted to extend bailout money to the Life Insurance Industry.  Pulte Homes announced plans to acquire Centex and the FOMC minutes predicted slower growth for the next 1 ½ years.  The DOW sorted through this information and closed higher by 48 points.

The trading week finished early due to Easter with Thursday’s action posting big gains as WFC blew the doors off their earnings.  The DOW registered a 246 point gain.

Last Friday’s close to Thursday’s close this week posted gains on the major indexes with the DOW up 65, the SPX better by 14 and the COMPQ  gaining 31.

 Learn to trade the markets!!  Click here.

 

-The DOW will continue higher to test the double top from January/February.  The first test will be at 8315 and then 8405.  If it breaks those levels, it will move higher to challenge the swing high at 9088 from the first of the year.

-The SPX is going higher to test the double top at 877 from late January and mid February.  From there, the next stop is the double top at 918 from December ‘08.  I believe it will eventually hit the swing high at 944 from early January.

-The COMPQ should test 1666 this week.  If it breaches that level, we have a straight shot to the swing high of 1786 from 11/4/08.

 

 

This strategy entails shorting both puts and calls at the same strike price and expiration.  It is best place with very little time until expiration and with a low expectation of volatility.  The position has unlimited risk on both sides of the trade.  Reward is limited to the credit received.  This is a very aggressive strategy so we want to give the underlying security as little time as possible to move away from the short option strike price.  Another way to think of this trade is that it is an Iron Butterfly without the wings.  (no protective long options)

Study the rick graph and you should gain an understanding of the risk and reward of the trade.  Best Robin