Saved by the bell!

Well, I really meant it! The dangling profits from the MA backspread ER play and the CTRP bull put spreads ER play finally fell into the pocket! They were close calls, to say the least!

Well, bulls won the week by counter-engulfing the bears, and that added more confusion to my already clouded mind, in other words, TGIF, it is high time that I shall use some crispy and chilled beers to cleanse my mind and open up my eyes. Who do you think would look stronger from my beer goggle? Bulls or Bears?

Enjoy the weekend!

Are big boys still sitting tight?

It was mysterious, yet like a clock work, at exactly 2:30 pm, the first round of sell-off was launched, followed by several rounds of dumping on even higher volumes. For both DOW and SP500, it appears that the bearish engulfing candles on the weekly charts asserted their power at the last moment. As for NASDAQ, well, the underlying momentum just had to drive it up to its MA200. Or, are big boys done the sitting as they cannot help but come in to reap the fat call premiums they had built up for days? Things are getting really delicate now, we all know that bulls have more lives than a cat, but do we know what big boys are up to after sitting tight for weeks?

Looks like I got it just wrong when it comes to how to play CTRP and SINA ER, not sure if the cushion I gave to CTRP will be sufficient tomorrow.

If the market gaps up/spikes up tomorrow morning, I may short AAPL, BIDU, GOOG. On the long side, I will keep an eye on PCLN and RIMM.

Position Update

Ever tasted slow-roasted bear claws whose price is actually dropping thanks to the "what inflation?" report today! Well, we are having that! I cannot wait to see if big boys will crush all those calls by this Friday.

AAPL puts: stopped out yesterday after it solidly broke above 190, again, acted against my initial plan (won't short until at least it reaches 192).

MON puts: stopped out in the morning when it busted through yesterday's high with volume, now eying 128/130 re-entry.

CTRP ER Play: entered a bull put spreads (55/50) for 10 contracts/ea with an initial credit of $650.

SINA ER Play: don't feel nearly comfortable to take a 50/45 bull put spread, thought about selling May 45 puts, but that felt like a silly play thought with OE so close, the risk is extremely low, we'll see...

In both cases, I decided not to use the straddle play because of sky-high IV...

Weekly Trading Calls -- May 11, 2008

Overall Trading Strategy for Next Week

As I stated in my “Weekend Notes on the Market”, technically, there are signs that the multi-week rally off the March bottom may be coming to an end; however, the lack of big institutions participation may hinder any sustained trending on either direction.

1. AGU: CTT between MA50 and the recent high, don’t trade the mid-range.

2. AMZN: CTT between 64/67 and 77/80, don’t trade the mid-range.

3. BIDU: CTT between MA200/MA50/300 and 380/400, don’t trade the mid-range.

4. FCX: CTT between 100/MA50 and 120/123, don’t trade the mid-range.

5. PCLN: SW-L1, ez=130-133, ITS just below 130, CS below 132, IT=150.

Earning Plays:
LDK, CLWR, NUAN, TJX, ERTS, HMIN, WFMI, TOL, WMT, CTRP, URBN, EJ, HPQ, KSS, JCP, ANF.

Weekend notes on the market -- May 10, 2008

If “the worst is behind us”, what lies ahead?

The surging oil price and the lack of uplifting economic/earning news snapped bulls’ 3-week winning streak, along the way, the major indices fell below some key levels.
On the weekly charts: both SP500 and DOW posted bearish engulfing candles with positive momentum stalled, NASDAQ was less bearish in comparison; stochastic in overbought; weekly volumes remain relatively light.
On the daily charts: for all major indices, the momentum, which displayed bearish divergence in recent weeks, finally flipped to the negative side; MACD has either crossed down (SP500 and DOW) or is poised to do so (NASDAQ); MA10s turning down; stochastic and RSI(2) point to further near-term decline; overall candle formation turned bearish in recent days;
On VIX: while technically it still looks like a broken case, its momentum crossed to the positive side for the first time since late March, and with MACD now crossed up, the chances are that it would continue to rebound in the near-term.

Thoughts and observations about the current market conditions and near-term outlook:

1. Technically speaking, the market is at a crucial point. On the one hand, both weekly and daily charts show many signs suggesting the multi-week rebound might be coming to the end, on the other hand, the pullbacks came in on light volumes. As the major indices now at some key support levels, the lack of big boys participation on the sell side may limit the extent of the decline.
2. As the fuel that has been driving the bullish movement in last 6-7 weeks, such as FOMC rate cut and Q1 ER, is running out, bulls are in urgent need to find new fuel in order to sustain the march. I must say that it hurts my head try to find any such fuel in the coming weeks for bulls.
3. Speaking of fuel, the pain caused by the ferocious advancing of the oil price has finally become too much to be overlooked. The impact is quickly spreading from the daily life of individual people to the bottom line of many companies (just look at FedEx earning warning on the Friday after the close). While I feel that oil is entering a parabolic moving stage that might be followed by a mini-crash, the chart suggests that the break-out run is no where near the end of the course.
4. Any one who holds bullish view on the market for the coming months should be really concerned about this week’s huge jump of the consumer debt. Bulls better hope that both economy and housing market will turn the corner in a hurry, or what are described in this article ("Barely surviving on credit cards") could become the harbinger of what to come down the road.
5. Next week’s inflation report will likely shape the path for the market in coming months. Any hot than expected inflation readings could pretty much extinguish any hope that a new bull market is emerging, to say the least.

Position update

PCLN Long Butterfly Spread ER Play:
Took the chances for non-simultaneous executions: covered MAY 125 call at $13.9 when it fell to near 138; sold both May 115 call (at $26.2) and 135 call ($8.05) in the early going when it was around 141. The net profit is just over $400 (what can you say, Razor's prediction was right!). Had I closed all the positions simultaneously, I would have lost any where between $60-300, which was not bad. The key of this play is that as expected, the IV absolutely collapsed post-ER (near 30% drop!!!).

MON and AAPL puts: still holding with small profits as my stops are very close.

On the market: not sure if the market has found intra-day low yet. It is worthwhile to point out that if the major indices close poorly today, there will be a bunch of bearish engulfing candles on the weekly charts, which would spell trouble for the multi-week rally. We will see, maybe bulls can come back later today...

Butterflies in My Stomach-- PCLN ER Play

This is a tough one, PCLN moved post-ER in Qs, so a long straddle would seem to make sense, except that the IV is extremely high and the premiums are horrendously overpriced. Which means if it does not move more than 10%, a long straddle could be doomed as the IV will collapse for sure. So, here is what I have done today:

Strategy: long butterfly spread
Sold: 4 May 125 call at $5.9
Bought: 2 May 115 call at $11.1
Bought: 2 May 135 call at $2.45
Net debit: $3.5
Maximum loss: $350 (excluding all fees)
Maximum profit: to da moon (yeah, right!)

Also bought 2 puts each for AAPL (June 180) and MON (June 120) earlier today, but did not pull trigger on SOHU June 75 put.

Now, if you excuse me, I just got butterflies in my stomach!

Smack down!

Well, guess bears finally decided that they have put up with the arrogant bulls long enough! However, I wouldn't bet on an easy victory by bears just yet, in fact, bears have to push the market below last week's open/low by the end of Friday in order to have any possibility of cap the multi-week rally that started in the Mid-March bottom. For aggressive bulls, maybe it is worth a shot if the market gaps down/spikes down big tomorrow morning; aggressive bears, on the other hand, can take their chance if the market gaps up/spikes up in the early going tomorrow morning. If you are a sheep, sit tight is the best thing for now.

I decide to go easy on straddle plays for the time being while trying to spend some time to really research the issue until I have a quantitative understanding of all the moving parts as well as the potential edges. On the other hand, PCLN keeps flashing in front of me, hmmm

Straddle this!

Is it me or anyone else start to get this feeling that bulls are becoming increasingly invincible with just about every passing day? If you do feel this way, you might want to tighten-up the stop-loss of any long positions you have.
I must say I am impressed by what bulls did today, which was best seen in FNM action. I start to think that a leaking ship, even if the leaking is very bad, does not necessarily doom the crew, IF the tide (liquidity) is high and fast, the crew still has the hope to reach the promised land, but to have a good chance, they would either need to plug all the leaking holes before too late OR the tide must keep rising and forwarding. Now, which way will this story go?

Noticed that most of ER so far this week turned out non-event with less than 5% move, which, when combined with collapsing IV, would doom most of long straddle plays. So why not reverse the thinking and play the short straddle on them? I mean, after all, most ER produce less than 5% post-ER movement, right? Hmm, you think I am on something here? OK, that's it folks, I need to do some research on this now....

Now what?

Bulls certainly know what they are doing, but what about bears?

On Yahoo: turned out to be a big mistake not to take a straddle play last Friday, my primarily concern was a prolonged drag on the negotiation process, did not expect MSFT pulled out so swiftly.

Thought about applying the long straddle to NILE/BEXP/PCS/OSIP/ONXX for their ER plays, but ended with an empty hand either because of high IV readings or low volumes, or both. Among those that I may keep eyes on for the rest of week are: CTSH, RIG, CELG, DWSN, LEAP, NVDA, PCLN and VRSN.

Some nightly observations and thoughts:

1. AAPL: someone just asked for my view. Well, AAPL bulls are pretty determined to take it to the new high, which might occur before the expiration of May options. However, it is overbought on every time frame, so I would not be surprised if it pulls back to 170 or MA10. I have no desire to long it at this level, I also won't play a cute bear before it reaches around 192 at the minimum.

2. The steel sector: something was going on in X as it surged in the closing hour on very heavy volume, AKS and NUE are also poised to break to the new highs tomorrow. There are some topping signs, but might not be wise to hit them head on right now...

Weekly Trading Calls -- May 4, 2008

Overall Trading Strategy for Next Week

As I stated in my “Weekend Notes on the Market”, technically, the market should continue trending up for another 1-3 weeks at least, therefore, aggressive SW-S should be generally avoided. However, over-perusing from the long side could be risky as the major indices in overbought conditions and the big boys continue to remain on the sideline.
I started to dip my toes into the option trading swamp last week with some encouraging successes, especially with the long straddle strategy in ER plays. I will continue the exploration, but may focus more on research of such strategy to find ways to maximize the r/r ratio.

1. AGU: CTT between MA50 and the recent high, don’t trade the mid-range

2. AKS: SW-S3 if it spikes towards 68/69 again, IDS just above 71, CS just above 70, IT=MA50.

3. APA: CTT between 120/MA50 and 135/142, don’t trade the mid-range.

4. CF: CTT between 120/MA50 and 146.5/155, don’t trade the mid-range.

5. FSLR: SW-S2 if it spikes towards 300 again, IDS just above 310, CS just above 300 on bullish candle, IT=MA50/260.

6. MON: SW-S2, ez=123-130, stop just above 132, IT=108/MA200.

7. MOS: CTT between 110/MA50 and 135/140, don’t trade the mid range

8. POT: CTT between 165/MA50 and 207/215, don’t trade the mid-range.

9. V: SW-S2 if it spikes towards 87 again, IDS just above 90, CS above 87 on bullish candle, IT=MA10.

10. WFR: SW-S1 if it spikes towards 70, IDS just above 72, CS just above 70/MA200 on bullish candle, IT=56

Still working on the ER Straddle Play List for the next week.

Weekend notes on the market -- May 3 ,2008

Back to the bull market?

The growing optimisms aided by the rate cut and better than expected key economic reports, the bulls charged ahead and registered the 3rd consecutive winning week. Along the way, the major indices broke out the 2008 trading range and closed above the key resistance levels.
On the weekly charts: for all major indices, positive momentum rising for the 3rd straight week; both stochastic and RSI(2) solidly in overbought; candle formation remains bullish; weekly volumes remain relatively light.
On the daily charts: for all major indices, positive momentum stalled in recent days as the prices moving higher; both stochastic and RSI(2) in overbought; candle formation overall bullish; short-term MAs in confirmed bullish formation; DOW closed around MA200 while the other two are poised to test their MA200.

Thoughts and observations about the current market conditions and near-term outlook:

1. Technically speaking, the market should continue trending up for at least another 1-3 weeks. However, there would be a lot of back and forth motions as the major indices in overbought conditions. The climbing may also lose steam along the way as the ER season comes to the end and no other major economic news event for the next several weeks.
2. Big boys continue to mostly sit tight despite of the growing optimisms and bullish sentiment. This, combining the big drop in VIX, may actually setup a sizable pullback as the major indices approach key resistances (SP500 MA200-1440, NASDAQ MA200-2540, DOW 13250-13700).
3. Despite all the bullish chats, macro economic conditions are WORSE than most people think (especially the retailer bulls), just look at the Fed’s rate cut in spite of their increasing concerns over inflation and its liquid injection remains at feverish pace.
4. Market has chosen to ignore the inflation issue right now. However, if we actually never really have had a recession (as some headline reports suggested) and now the economy is rebounding, the inflation consequences may emerge stronger AND SOONER than Mr. Market expects. We all know what raging inflation could do to the market.

MicroHoo or YaSoft?

Thinking about doing a straddle on YHOO as a buy-out play, but could not pull the trigger because I am uncertain about the potential room for any downside move.

Thought about getting back into V put position, but the early stupidity really messed up my psyche today.

In other words, I need do some serious beer-boarding on myself tonight!

Update on position and stupidity

I am really pissed off, and here are what I have done so far today:

1. BOOM ER Straddle Play:
Closed before leaving for work for a profit just over $1150 (about 41% gain), could've been more patient as the puts went up over another buck..

2. WLT ER straddle play:
Closed in the opening with a loss of just over $200 (about 15% loss). I should've waited a bit more as WLT rose steadily after I exited, and it would've been a winner of a few hundreds.

3. FSLR short position:
stopped out near even, was I wise not to take profit yesterday when I was over 11 points in the green?? Was I wise not to stick to my original stop (just above 285)? Why I am half-assed on both accounts?!

Here is what really infuriated me:

4. V -- Short the top play:
Bought June 90 puts when it broke 86 in the early going, took half profit when it was near 83, AND for some reasons, placed a sell order for the remaining half, which was hit while I was on my way to work. So I ended up falling from the wagon with barely 25% gain, what *(&#R%# is wrong with me, I mean, now I start to DT options??

I might just buy Razor a few drinks and ask him afterwards to stab my dumb ass with his razor sharp knife...

Why I am always fearful when I really should feel hopeful? Why I am always hopeful when I really should feel fearful?

Just hopelessly stupid!

ER plays on WLT and BOOM

Well, here we go again: picked BOOM because it is a very volatile one (I vaguely remember Razor cut himself a quick 5-6 points profit last Q); picked WLT because it has been on the tear and it could move big after ER. Below are the entries:

BOOM ER play -- Long Straddle Strategy
** Bought 5 May 45 put -$1000 ($2, 71)
5 May 45 call -$1875 ($3.75, 70)
Total risk: -$2875

WLT ER play -- Long Straddle Strategy
** Bought 2 May 70 put -$910 ($4.55, 61)
2 May 70 call -$510 ($2.55, 59)
Total risk: -$1420

IV are high for both setups so I might be dragging my feet here. Good sign that as of now BOOM dropped over 10% in AH, need to see good movement on WLT too..

Things are definitely looking very well for bulls, but why the heck I feel so reluctant to go long here?