Licking Music Market Musings

The told me so....

2010-07-09T16:06:00.000-07:00

Well - I did it. Every book I’ve ever read said I would and that it would cost me. I overtraded. It wasn’t terrible except that I am starting with a $3k account and when you put on 6 trades all in the same direction (and big mistake # 2 - contrary to the current trend) and they go against you - It hurts. I was profitable in all the trades and saw all of them turn against me but I could not get out. Why? Because the Federal Government was ‘protecting’ me. In order to keep traders with small accounts (the little guy they are always talking about in their speeches) ‘safe’ from ‘over-trading’ their accounts, anyone with an account of less than $25,000 can only make 3 round trip trades in any 5 day period. So, when I wanted to take my 6 trades and $600 profit off the table and go to cash, I couldn’t. In hind sight, I could and should have taken at least 1 -3 of the most profitable trades off - but I got greedy and fearful all at the same time. I broke a few of my own rules too which is easy when you do not have them written down and in front of you - which is my assignment for this weekend.

I then made it worse by taking a position in SPY, once again against the prevailing trend, trying to catch the proverbial knife, and deciding to test out something I read in a book about stops based on time - something I discovered I am not comfortable with since I have a real job and can’t spend my days in front of the computer watching the tape all day - another $250 mistake.

All this lead me back to instituting base positions of short verticals and iron condors.

On Monday I sold 2 113/115/101/99 iron condors for .95 cents. break-even on both ends is 99.54 and 11.48. This is the type of trade I believe more of my account should be devoted to because time works in my favor and it allows me to not have to or need to watch all day or check on when I am at work during the day.

I have 2 more positions open that I entered at a high risk/reward area on GDX. A July 49 call and an Aug 50 call. My entry was good but - once again - I got in with a profit target but not a stop-loss exit so I am still in it as it meanders back and forth. I am so spooked by the possibility of being labeled a day-trader and any penalties and tax changes that designation would cost me that I am afraid to get out of a position for a profit or a loss. I’ll have to delve into the why of that further and going forward I will set stops.

Here is the 30 min chart of GDX. I got in around the upward trend line at the bottom of an ascending channel but the first time it hit the bottom. It has now hit the bottom 3 times and looks to be forming an inverted head & shoulder pattern. My profit stops are 51.50 and 52.00. My stop loss is a 30 min candle close below the low on the head around 48.50.

bought NEM put descending channel

2010-06-08T07:04:00.000-07:00

Bought 1 July 55 put @ 2.35. Stop is just above the high of 4/30/10. This is a possible head and shoulders setting up or a descending channel. My target is long term resistance line at 47.68. Once again maybe a little anxious about not wanting to miss an entry. I entered just below the top of the channel but there was already negative divergence forming in the SS and MACD on the 60 and 5 min charts and the dailies were 'oversold' Time will tell if that was anything more than an $11 mistake because it hit the top of the channel and bounced down a bit. will revisit this and post a chart later.

MGM closed out for profit

2010-06-07T15:54:00.000-07:00

Closed my MGM July 20 put for $1.63 (bot @ $1.00) for .63 cent profit. As I stated in my last post, I could have waited to enter the position on a touch of the resistance at 12.80 but this was a low risk entry as well with a stop placed slightly above the 12.80 resistance and I was assured to not miss entry if it dropped from there. I set a day stop at the low from May 25 because it seemed a good technical target if it mad a parabolic move down. It did and my stop at 11.03 was triggered. It closed an hour later at 11.01 - Pretty darn good call. Odds are that it will bounce tomorrow offering a chance to get back in the position at a better price or there may be trades that offer better risk/reward. It is up to 11.08 in after-hours trading. If it continues that bounce, I will look for a break of 11.01 to re-enter or if it retraces all the way to 12.80 we'll do it all again.

MCO continued it's drop to my target of 17.72 but it's drop seems to have slowed so I may look at exiting tomorrow or institute a trailing stop for my set stop.

My DIA and SPY bear call spreads are looking good they are both down to .04 and I have a buy stop set at .02 cents to close them out before OEX and commission free (ThinkorSwim doesn't charge commission on options bought back for less than .05)

2 new positions entered on Wednesday

2010-06-06T21:47:00.000-07:00

No time to post any charts because I am still not proficient enough and I am too tired to put in the effort. On Wednesday I did enter 2 positions though.

bought 1 MCO Jun 20 Put for .97

MCO broke through resistance @ 20.39 on what looked to me like a bear flag. I entered on a retrace of the half way point of the BRC (big red candle from Tuesday). I will raise my stop tomorrow to lock in some profits but I am projecting a possible move down to 17.72 so I will try and leave the stop wide enough to give it space to get there. Then again, if it makes a parabolic move on Monday, I will get out and look for a bounce to re-enter possibly with a July option.

bought 1 MGM July 12 Put for 1.00

both trades had a risk around $25 and a target of 4 x risk ($100). MGM was butting up against resistance at 12.80. I could have placed an order to buy the put at market when it hit the resistance, which it did the next day, but in cases it was a bear flag and was going to drop from there the risk was still small enough to enter when I did. My target for MGM is as low as $9.00. I still don't have a trailing stop system but I am researching a few possibilities. Until then I will update my stops nightly before the next day's trading.

The futures are down slightly tonight. A gao down and drop just enough to trigger the buy back of my spreads at .02 a piece would be a nice way to start the week.

Sunday Prep and Follow up May 30, 2010

2010-05-30T15:35:00.000-07:00

Last Week:

It seemed the majority of the media and even the Bear blogs were looking for a bounce last week. It didn't bounce . The weekly spx ended around .30 higher than the previous week. I thought it would meander around in a trading range so I sold the 2 spreads in the previous post on SPY and DIA. I thought I would have earned more at this point but the VIX has stayed high while price has been up and down but so far with out threatening my positions. I will hold them until the week of expiration or I can buy them back for .02 cents.

I also entered a long position in GDX by buying a 48 Call for $2.00 and sold it 3 days later for $2.85. I agonized over whether or not to close it out when it hit $3.35 on the second day. Turns out I should have because it hit a descending trendline I had drawn, stalled then plummeted, losing all of that days gain. I was trying to stay in for more of the move (my target was 51.43). Since I was using June options in a very volatile market, I should have jumped out with a big 2 day gain when it stalled at the ascending trendline, the rest of the market weakened, and the VIX began to drop.

I also bought a WMT Jun 50 Call for $1.30 to play the expected bounce. It bounced but not enough to over come the built in volatility. It was moving very slow and broke the supporting trendline on both days even though it closed above it so I sold it for $1.19 losing $11 + $3 commissions on that trade. If it does bounce off that trendline and support around 50.25 it may be too slow of a mover to make enough profit using options. If it breaks that trend line then it will make an excellent short candidate.

This Week:

I am expecting more of the same as last week volatile markets trading within a range. My credit spreads would like to see a drop which is more possible after last week's weakness. I would not mind a bounce to get everyone thinking positive so I can load up on puts at the down sloping trend line but don' t see it getting above 113 - 113.5 on the SPY to threaten my spreads.

I will scan my 200 or so stocks with tight option spreads looking for setups later tonight. If I get a chance and get faster at this blogging stuff maybe I will post my daily watch list. Also on the to do list is to post my trading rules and strategy somewhere on the blog/diary.

May 26 -missed opportunities

2010-05-26T16:04:00.000-07:00

Wow. Tis market is moving fast. I watched WMT not move at all - contemplated getting out and did not. When the rest of the market was moving up fast and WMT didn't move at all in a very volatile market I should have taken the hint and gotten out. My stop loss is mental and just below yesterday's low. If the after hours is any indication, I will be getting out of this one tomorrow. But then again in this market who knows it may bounce right back up tomorrow.

I watched GDX bounce against resistance of the descending trend line. I would normally have taken profits there for a great 2 day move but I was going to try and let this one run. Maybe I should only let positions run that are going with the prevailing market trend which at the moment is definitely down.

On the other hand, my short verticals are benefitting from the sideways to down movement every day.

WMT and GDX May 25

2010-05-25T20:58:00.000-07:00

These were a couple of call buys anticipating a bounce after some serious drops. First WalMart. WMT hit a 3 year ascending trendline and stuck to it on a day when the rest of the market gaped down, dropped further, and then bounced back. The risk reward on this is good because I will know quickly if the support line holds and can get out quick if the trade moves against me. If it does break support it should be a good stock to short. The recent trend was down on Wal Mart but I am playing the long term 3 year trend line on this one. We'll know tomorrow how this goes.

GDX 1 June 48 call for $2.00

With GDX, Multiple oversold indicators and divergences pointed to a low risk possibility for a bounce in the market. My trading rules don't allow me to trade bounces up in down trending stocks and a few of the gold miners like NEM, ABX, and a couple of others had divergences in the slow stochastic, MACD so of course the gold miner ETF did as well. Playing the ETF also freed me from having to pick between all of the miners that looked like good trades. The stock immediately moved up to almost 49 by the end of the day. As it turned out, the divergence plays on the other stocks in financials and a few other sectors that I wanted to take would have been really good ones too but I stuck to my entry and money management rules. My target on this one is $51.21.

May 21 second trade

2010-05-25T16:44:00.001-07:00

The DIA bear call vertical was in essence the exact same trade as the Spy but I got a little better credit at .35 for the 104/105 bear call vertical

5/21 trade #1

2010-05-25T14:37:00.000-07:00

Short 3 June 114/115 call verticals for .30. Implied volatility was too high for me to feel comfortable buying a put but just right to sell some volatility and time. The market had already moved down a good amount and in a short period of time but there was still heavy down side risk and one of my rules is to not trade against the immediate and intermediate trends. In the chart below you can see that the 114 call I sold would be above the solid downtrend line further decreasing the interpretable risk. The mathematical probabilities of this trade expiring out of the money (OTM) were 70%. 114 was also above the 61.8% fib retracement line of the current downtrend and May 21 had been a big up day which I believed would retrace a little of its gains the next day.

Real Money from here out

2010-05-25T13:54:00.000-07:00

I have not kept up with journaling my trades well at all. As of April 1, 2010 all trades taken are real money. I funded my account with Thinkorswim at just above the minimum amount required to trade.

My first 3 trades were losers. Just like all the books said I would and I swore I wouldn't, I closed out early 2 bear call spreads when they went against me a little for small loses that ended up being winners. I closed out 2 puts on HAL and MCD for small loses a couple of days later. Because of these loses and something I learned in one of my market books (up to almost 30 now)I added this rule to my trading: "Only trade in the direction of the trend. " That's fine and dandy until you start looking at charts that are in long term (1 year +) uptrends, intermediate term (2-3 months) uptrends, but short term/immediate (5 - 30 days) downtrends. So, I have to decide what constitutes a trend in my trading rules. A couple of people suggest never taking a bullish trade below the 200 MA or a bearish one above it. That was too conservative for me. I have decided that if there are higher highs and higher lows I can make a bullish trade and a bearish as long as there are lower highs and lower lows. I will play bounces off resistance in a downtrend and bounces off support in an uptrend. As I record my trades on here I will explain my method and it should become much clearer.

Let's start with a couple of winners

2009-07-08T14:05:00.000-07:00

I joined a trading group in my area on Monday. It was nice to hang out and discuss the market with other traders. My wife appreciates me talking to someone else about the subject too because she could care less about this stuff.

The question most often asked while identifying support and resistance areas on different stocks was, "How would you trade this?". So, here is what I saw and what I did on 2 recent trades.

July 16, 2009 - CRM looked unable to break the light yellow downtrend line or the resistance level in the mid 41's so I bought a July 41 Put for $2.50 with a market stop at $42.22 and target of $35.42. I closed it out on July 7th for $5.50 because I got scared of a bounce before it hit the target like the one on June 23. In the end, my emotional exit (shame on me) only cost me a couple of dollars this time. My target would have been hit and closed on a market order today. The yellow box highlights the trade.

The second trade was entered on the same day but took less time to reach my target.

CHK 22.5 july Put 2 @ $1.50 July 16,2009

Resistance = 24.38 Support= 19.52

entry = 22.38 stop = 24.87 target = 19.60

Everything went as planned and I was taken out by market stop

I entered 4 trades that day. 3 winners for $863 and one loser for $78. Best of all, I took my small loss and did not try and wait for it to turn around (which it did 8 days later - hitting my target on the nose 4 days after that). If I had placed this trade as a spread, I would still be in it and on the positive side - but vertical spreads are a subject for another day.

I put together a fairly long list of stocks with penny increment options sitting at support on Monday (I will post the list on the right soon). As with any support level, any break below it usually signals further downside to come.