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February 24, 2013 / redman59

Trade Idea: LVS for the Upside and Low Risk with Options

While I was absent from the markets on Friday there seemed to be much buzz about LVS in the social media space and across the options market.  Much of the action in LVS options is attracted to the March and May option chains.  A picture of the March chain is below:


This to me looks like a ratio spread to be confirmed by looking at open interest on Monday.  In this spread the trader is buying the March 52.25 calls and selling twice as many March 55 calls for a net debit 0.69c.  Also there was action in the May options chain as well.  There was a big block of 17,397 calls on the ask for a 2.05 debit.  All together the May 52.5 calls saw volume of 27,245 contracts vs open interest of 282.  A picture of the T&S can be seen below:


Now that the options action has set the alert, it is time to look at the chart to see if the technicals align with the action:


In the chart we can that LVS has been in a downtrend (annoted by red bars) with a reversal bar (green bar).  If LVS breaks above the high of the green bar there is a probability for a continued long trade.  If it breaks below the low of the green bar then the downtrend is likely to resume.  Note that this is all short-term price action in timeframe of a swing trade.  On another note for the bullish side LVS saw a nice hammer candle on the 100ema on volume above average that was confirmed by Fridays candle on volume above average.

So what’s the trade?

In this scenario I like to look at the recent option action, especially the ratio spread.  In this trade the trader is looking at the following risk profile with March expiration in mind:

lvs_0222dIn following this trade I would be looking at upside for LVS as this big trader is looking for it to close between 52.43 and 57.57 at March expiration.  The furthest red-dashed line to the left represents current price.  This risk profile combined with the May action as annotated above has me leaning bullish in LVS.

My trade recommendation is an upside March call butterfly spread.  I personally would trade the same ratio spread but for margin purposes I believe the butterfly spread offers much of the same opportunity without the same margin requirements.  I like the March 52.5/55/57.5 call butterfly for a 0.19c debit (max loss $19).  This captures approximately the same range for a reduced cost.  Risk profile can be seen below:


I really like this trade from a risk:reward standpoint and that it actually follows the big trade that was put on in the March ratio spread.  As always this trade is based on my thoughts and the individual trader is responsible for his/her decisions.

February 21, 2013 / redman59

Back to the Beginning in AAPL Trade

In my most recent post titled “Following the Trade – AAPL Trade Adjustment on Friday 2/15” I detailed the ongoing trade that I have on in AAPL.  In this post I won’t go into full detail on the trade, reasons for, and adjustments but here are the links in chronological order of those details stated:

Today I closed that  Feb4/Mar1 440 Put Calendar in the morning for a 4.40 credit (+$271.00, 160.4%), trade order below:


I wanted to take advantage of the morning weakness and just close out this hedge to the main Broken Wing Butterfly that I had on.  With the gains in the 2 calendar trades I put on, the remaining trade of the original BWB is a risk-free trade at a $95 credit.  I do not plan to add anymore hedging strategies to this trade and instead will ride out the BWB more and likely to near expiration.  In a perfect world AAPL would shoot past then retrace to the 480 level around March expiration, 22 days.

Below is the new risk profile, same look as the original trade with different risk/reward:


Now I sit and wait until March expiration.  I could keep adding a hedging strategy but with those 2 calendar trades I am happy with the risk and will let AAPL do its thing leaving the long bias trade on.  Below is a trade history:


February 21, 2013 / redman59

Lockstep Performance by ETF’s

In doing some reading after the market I came across an interesting post from Bespoke Investment Group titled Key ETF Performance.  The table shows the performance of the ETF’s after yesterday’s decline in the markets.  In looking at this table, it looks as if everything moved in alignment the way it is expected:

  • Sectors – the worst performers were Energy and Materials while the best performers were Consumer Staples and Utilities (the flight to safer assets)
  • Euro down and Yen up
  • Japan was best global ETF performer while Russia, correlated to natural resources, was the worst performer
  • Bonds, which are negative YTD, saw gains across the group

Picture courtesy of Bespoke Investment Group:


Even though it was the biggest down day of the year on volume above average, I like to see that these key ETF’s performed as expected on a macro scale.

February 21, 2013 / redman59

Another Gold Analysis with some Volatility, Options, and Charts

Its no secret that gold and the miners (via GDX) took a hit today.  All I heard from CNBC was the looming Death Cross (50sma crossing below 200sma).  Quite frankly it got old and then there was the FOMC Meeting Minutes that caused further selling on volume in the yellow metal and miners.  But was today a capitulation?  That is what many seem to be wondering.  Today many talked about the rise in the VIX and yes it was big on a relative percentage move in comparison to the SPX.

When looking at the VIX-type instrument for gold we look at the GVZ.  Today the GVZ saw a move of 18.03%.  Below is a 1 year daily log chart showing the size of the move.  Something to note is that GLD really saw this down move accelerate last Friday on the gap below 158, but note what the GVZ has done on the Friday & Tuesday moves  in comparison to today:


Also with that I like to look at what the GLD  implied volatility (IV) has done in the options, below is an excel screenshot of the rise in volatility since the close of Thursday (data from thinkorswim):


We can see the larger rise on a percentage basis in the near-dated weekly options verse the monthly option chain.  Next week expiration showed a rise of 4.03 points (29.94%) in the calls and 4.33 points (31.22%) in the puts.  A bigger jump relative to price change than we saw on the previous decline Friday.  Personally I’m liking the idea of selling some front month volatility and buying further dated options.

On a chart and price basis, how big was the move today?  When looking at volatility of the instrument, many use Bollinger Bands and I like to use them as well.  Today it was noted by several on the stream that we closed below the 3rd standard deviation 20 day Bollinger Band.  While traders like to use the fat tails of moves as price has been known to walk the band on the 2 standard deviation setting, this isn’t quite so common with the 3rd standard deviation.  It is a more rare occurrence that often sees a snap back.

I looked at the last 10 years of data for GLD and a close below the lower 3rd standard deviation band has happened twice, both being in 2012 (yellow arrows mark a close below then back inside the band):


Zoomed in view:


Below is a chart of GLD going back to when we broke out and GLD went parabolic:


I have a correlation  to GDX as today it was noted on the stream by several I follow that the metals saw big option buys near the close in ABX, GG, & NEM in the January 2014 chain, search stream with ticker and you will find the posts.  ABX stuck out in my mind as January saw buyers of the 40 calls, noted by @OptionsHawk at his website where there are usually 4 free option notes for each day:


These go all the way out to January 2014 so if you were looking to play off some of this information you will definitely want to go out in time and let the trade work.  The trades today (2/20) were put on for cheap on an option price basis but are also +1million dollar trades.  Either way use diligence if using this info for a trade and keep timeframe in mind.

February 18, 2013 / redman59

Following the Trade – AAPL Trade Adjustment on Friday 2/15

I made another adjustement to the AAPL trade I currently have on.  I will provide a quick recap of risk profiles and charts and I will leave it to the reader to click on the link to read more in detail on why I went long AAPL starting 2/5.  I have made 2 adjustments to this trade as of 2/15.

As stated in my first post, “Utilizing Market Comments from Other Traders“, I went long AAPL with options in the form of a Broken Wing Butterfly, below are pictures of my order entry and risk profile:

Order entry:


Risk profile:


On 2/11 I made an adjustment (via 460 Put Calendar) to protect from downside action.  More into the analysis of the why and what I was looking at can be found in this post, “Trade Adjustment – AAPL“.  Below is the order entry with the addition of the risk profile with the adjustment:

Order entry:


Risk profile:


**Now for the new trade and adjustment made. **

I rolled that 460 Put Calendar in the afternoon on Friday.  The hindsight trade would have been to leave it on for what turned out to be a perfect pin at 460 and max profits achieved.  The way I saw it though and playing this Calendar Spread was that I had risk to the upside on the Put Calendar trade if AAPL were to move higher.  Below is the 15min chart of AAPL and where I rolled the position:


My order was to close out the 460 Put Calendar and roll to next weeks 440 Put Calendar.  On the daily AAPL is still in a long-term downtrend, but also in a low volume pullback on that recent break above 460:


Needless to say I see AAPL as a tough trade.  I wasn’t happy with the 450 Put Calendar as a hedge against the current long Broken Wing Butterfly so I went with next week’s 440 Put Calendar, in case we see that whoosh below 450.  I then believe 440 will hold on a price and time to expiration basis. Below is my order entry:


I executed this in one order and rolled this position for a 2.40 credit. Broken down:

  • closed the 460 Put Calendar (original debit 1.60) at 4.09 (+$249.00, +155.6%)
  • opened the 440 Put Calendar at 1.69
  • overall a positive gain of $80 with no more risk in the Put Calendar hedge and reducing my cost basis of the original trade of the Call Broken Wing Butterfly from 4.25 to 3.45.

Below is my new risk profile going into Friday expiration 2/22:


Overall I am comfortable with my adjustment allowing for downside protection in case we see that drop in AAPL.  The downside is where my risk in the combined trade is and this is what I am looking to protect.

February 13, 2013 / redman59

Learn To Take The Loss

One of the hardest things to do in trading is take a loss.  This is what makes the game so hard as you will be reminded often that you are wrong.  Then when the hope strategy doesn’t work it creates a mental blow that leaves you offering excuses as to why it didn’t.  But after learning to take several losses you will find that losses are some of the best teaching aides out there and in fact can be rewarding.  Aside from studying and learning why it was a losing trade, it will create a mental relief as you are out of the trade and can reinforce your discipline or strategy as that loss becomes a bigger loss.  As many traders say, all big losses start as small losses.

Today I took my loss in an Amazon (AMZN) trade.  AMZN is a stock I like to trade with options as they are liquid, offer weekly options, and the stock moves.  I don’t want to go into much detail on the strategy here but want to keep this post more about taking losses.  On 2/12 I took on a bearish position in AMZN via March 260/255 Call Diagonal for a 2.45 debit (max risk to upside of $740.00).  Trade order entry shown below:


I took this trade while watching the 30min chart and I was looking to take advantage of anticipated downside but still bullish AMZN hence being on the call side of AMZN and long the March Call with weekly rolling capabilities.  Anyway here is the 30min chart I was looking at with notes:


So with this action I liked the idea that we would retest those 2/7 lows around 255 and this looked like a good place to get long AMZN according to the daily, overall the Call Diagonal was a strategy looking to take advantage of a pullback in order to get long.

So what happened?  AMZN came out with several news bits this morning of minting currency, playing its cloud in cars, and expanding a content licensing agreement with CBS; regardless it was all bullish news that had AMZN gapping up Wed morning almost 3 dollars.  My thoughts were of course “why not as I just put on a bearish strategy” looking for a gap down or selling to 255.  Right away I thought “all this news appears bullish for AMZN so lets see how it handles the opening gap?”

As stated in a previous post I was big on the 260 level for AMZN.  Another reason for this bearish position was its inability to hold that 260 level on Tuesday 2/12, so this was in focus for me.  Seeing that we would gap above this level left me feeling uncomfortable with my position and looking at how it handled that news.  Concentrating on a scaled down time frame, opening volume was bullish and the 260 level wasn’t even breached.  This told me I just need to accept the loss and I was wrong.  Below is a 30min and 5min chart:


It appears that this news from AMZN coupled with its continued selling since earnings was the catalyst it needed for further upside and it ripped through the day creating a nice daily chart.  Below you can see my order entry/exit orders:


I ended up taking a -$85.00 loss on this trade (per 1-lot, -34.6%).  But watching AMZN price through the day made a losing trade into an actual win from a mental capital standpoint.  Here is an EOD Risk Profile of the current trade, currently showing a loss of -$304.98 (-124% debit, -41% risk).  As you can see by the low/high red dashed lines not even a 2 sigma move to the downside (low probability of happening) would put me at  my target of 255:


I cut the loss realizing I was wrong in my thesis and ending up cutting it before it turned into 3.5x the current loss.  To me this is near a win as when I first started trading I would have turned this into a hope strategy (which it could still come back down).  I have learned through several blown accounts this doesn’t work and learning to cut the loss when you realize you are wrong from your initial analysis is the right strategy.

Now when I look back at this I ask myself “would I take this trade again?” and the answer is yes I would.  This just turned out to go against me with maybe some news catalysts & no anticipation of AMZN or some overall market weakness.  I preserved capital to move on to another trade or get back in AMZN.  If there is one thing I have learned through time it is the ability to realize I am wrong and learn why.  There are just some things you can’t control, accept your risk going into a trade.

February 13, 2013 / redman59

Was Last Night A Catalyst For These Stocks

Going through the news today I read that President Obama signed a cybersecurity executive order, which was also mentioned in last nights State of the Union speech.  You can read more from SlashGear but it will consist of:

“The executive order will lead to the creation of a group led by the feds to work with private companies in the creation and implementation of voluntary standards. This follows an attempted cybersecurity bill that was put forth last year and that ultimately died in August. The Obama administration stated that this executive order is only the beginning, and that it would continue to push for an approved cybersecurity bill.”

During the speech he mentioned the continuous and rapidly growing cyberattacks from foreign nations and companies trying to dismantle and disrupt our security and economy.  Reading this had me think of some cybersecurity  stocks which as an industry really haven’t performed this year and this news bit may be a small catalyst to jump start some performance.  For this I went to The PPT and did a Company Search with the keywords “cyber security” and “cybersecurity” and came up with the following 15 results (sorted by market cap):


Below I have imported these to FinViz so that you can also get a view of the charts and click here to sort to your liking:


Also I did not read through all these company descriptions but from a glance I can see that most of them pertain to cybersecurity.  I can also see ESI (an educator) in there which probably got flagged due to its cybersecurity programs.  As always make sure you do your own verification.