This S&P 500 ($SPX) chart shows the past year of daily prices after the index finished the week at 1,295.22 on Friday, May 18, 2012..
The reason we look at charts is to try to find a pattern in the past that could reflect the direction to come in the future. We’ve all read the disclaimers that read, past performance is not indicative of future results, but we keep looking back anyway. Of course, I believe charts can help predict future results or I wouldn’t be so dependent on charts for my trades. I also realize that indicators might work the majority of the time, but all fail at some point. That’s what keeps the “novice investors” at bay.
Many of the indicators in the current chart are bearish. I didn’t even include the 10 and 20 day moving averages (dma) in this week’s chart, but I can mention they are still showing a bearish signal with the 10 dma below the 20 dma. The shortest trend line of lower highs from March through mid-May broke support …
To say this wasn’t a good options expiration for my account would be a bit of an understatement. I have four puts that expired today on DIA, SPY, IWM and QCOM. All finished in the money and not by just a percent or two. All will be assigned (i.e. – I’ll be forced to buy) after today’s close.
That’s one way of looking at it. Another view is that I’m going to be able to buy into four positions I like for the long term and will be getting in at a discount from where they were trading when I made the trades. That’s what I’m telling myself at least. I didn’t roll any of these into months farther out because I’m not sure the strikes I want to use yet. I think the markets are very close to a bottom based on these three factors.
The S&P 500 is down almost 9% from its intraday high. 10% was the low end of my earlier target for a correction.
Greece fears are worse than I figured they’d be by now. (I expected it to be next year.) Today’s decline is bigger in part due to options expiration volatility, but also because many traders …
Bonds are getting interesting these days. The fears out of Europe are driving yields lower on this side of the ocean, which finance 101 tells us bond prices are rising. TLT is close to its all time closing high. I expect it will top out soon and come back to the low 120s quickly and eventually back to the $112-118 area. I believe that enough to keep my TLT July 127/129 short call spread in place for now even though I’m taking a beating on paper every day.
I started playing with TBT (leveraged inverse 20 year treasury ETF) spreads to see what I could come up with to profit from this extreme volatility. My initial instinct was to buy a call spread to profit from the collapse of bond prices (and matching TBT rally) that should hit within the next month or so. The issue with that is that if I’m wrong I’d lose twice, once on my TLT calls and then again on the TBT calls. I ended up doing the reverse, buying puts. While TBT was trading at $16.50 (and TLT was at $123.75) I bought five TBT June $16 puts for $0.45 and sold five TBT June …
Nine days ago I sold an EEM Iron Condor too close to the money and today I opted to buy it back and cut my losses. I closed the position for $0.27 after opening it for $0.24. The loss looks small that way, but commissions ate me up with 20 options in each of the four contracts. I started off with a single order to close all four contracts, but it didn’t hit for more than 30 minutes and I lost patience, so I canceled it and took out the put spreads first and then the call spreads. While EEM was trading at $38.93 I bought 20 EEM June $39.50 puts for $1.63 each and sold 20 EEM June $39.00 calls for $1.39. I paid $527.04 with commissions to close this side. Originally I received $166.99 for the put spread, so I took a loss of $360.05 for the put spread.
The puts had a bid/ask of $0.01 and $0.03. I thought I could close it at $0.02, but when that order didn’t hit for a while and I saw EEM regaining some of its losses I gave in and changed my order to hit …
I charted the past six months of daily prices for the Dow Jones Industrial Average ($DJIA, $INDU, $DJI, the Dow) after the index closed at 12,820.60 on Friday, May 11, 2012.
I went back six months on this chart so I could point out where the DJIA had its 50/100 day moving average (dma) bullish crossover at the beginning of December. I pointed out this majorly bullish technical indicator on the S&P 500 on the December 2nd chart. Following that call, the Dow and SPX had nearly four months of bullish trading. The reverse crossover has not happened yet, but the Dow chart has traded below its 50 dma for more than a week and has dipped below its 100 day a few times recently, including Friday’s close that was slightly below it. These are all warning signals, but aren’t necessarily sell signals yet. The true sell signal will come when the crossover actually happens.
The sell signal that I missed (but am not stressed about yet) was …
I had an MDY May put that was coming up to its expiration date next Friday. When I sold the May put, MDY was trading at $180.81. This afternoon, while MDY was trading at $176.25 I bought to close my MDY May $182 naked put for $6.00 and paid $601.02 including commissions. That gave me a whopping $8.34 in profit. The cool part is that MDY fell $4.56 during that time. So instead of losing $456 I made a few bucks. I know I say it all the time, but that’s a great example of why I use options. I didn’t lose when I mistimed a trade. That’s always a good feeling.
When I closed the May put, I also sold one MDY September $182 naked put for $12.50 and received $1,249.70 after commissions. My net premium intake was $648.67 for this calendar spread. I did this for a couple of reasons. I am getting close to being on margin due to most of my options that are on the way to being assigned and wanted to make sure I kept some cash handy, even if it’s spoken for later in the year. By going out …
I’ve been thinking about selling an option spread on DIA (Dow Jones Industrial ETF) since I made my EEM trade last Friday. When I saw the Dow trail off this morning and then find support I went back in with a limit order above the midpoint of the bid/ask to see if I could catch it on a retest of the lows of the day. Instead I waited around about four hours and saw it do nothing. By the final hour, while DIA was about mid-way between its highs and lows of the day I lowered my limit by a penny and the order hit. While DIA was trading at $128.30 I sold 20 DIA June $116 puts for $0.48 and bought 20 DIA June $114 puts for $0.36 and received $211.00 after I paid $29 in commissions on my $0.12 spread.
I chose this strike because I wanted to go close to 10% out of the money. The $116 strike gives me 9.67% cushion and I figured that was close enough to my target with only five and a half weeks left before expiration. Although it could happen, it’s extremely rare that the Dow falls 10% in less than two …
I’ve been searching for a new iron condor to trade, but for each ETF that I check I don’t like one side or the other (the puts or the calls). Instead of trying to force a trade I entered a vertical call spread this morning and left the put side of an iron condor off the table. I am considering adding more exposure for a bullish equity play, but it doesn’t have to be today. This morning we saw the S&P 500 finally hit the 5% mini-correction level I’ve been yammering about for weeks, if not more than a month. As the chart timing powers-that-be would have it, the 100 day moving average came into play at the same time and offered support. I’d like to see a positive day for stocks before I get too aggressive. I expect that day will be tomorrow.
Around the time all of that was brewing, when TLT was trading at $119.10 I sold 10 TLT vertical call spreads for a net $0.16 credit and received $145.50 after commissions. I sold the $127 strike calls for $0.44 each and bought the $129 strike calls for $0.28 each. Thanks to some advice I’ve received via email …
This S&P 500 ($SPX) chart shows the past three months of daily prices after the index finished the week at 1,369.10 on Friday, May 4, 2012.
The technical indicators are not giving as clear of a picture as they often do in foreshadowing what is to come in the near term. This tends to happen when an index or stock is in a consolidation phase and is range bound. Indicators, such as the moving averages and Williams %R can give false readings or roll over before the next trigger comes into play.
The 10 day moving average (dma) moved above the 20 dma early in this past week. This crossover is bullish and typically indicates more positive days are ahead for the bulls. However, within a couple of days, the 20 dma moved below the 50 dma. This is often indicative of the end of a rally and can lead to weeks lower for stocks. The direction for stocks lacks certainty without these three moving averages in agreement.
Williams %R showed a fall below the overbought range …
