1.8.08 – Volatile to say the least

Very volatile, and the bears win the day

Up, then down, then even, then up, then the floor dropped out of the market @ 2:30pm eastern the hedge fund managers came back from lunch and sold the market HARD. The SPY dropped from 142.40 to 138.50 (40pt S&P points in an hour and a half. Incredible.
The market is definitely sick. Does one really want to be long this market for any length of time?
I made a few mistakes, and a few small successes. The net – a fraction of a percent gain, yet I am good with that. I am sure my 401K with the Long only options is a disaster.
Bravo Bill, now time to save the world

I missed the cues on the day charts, and missed my opportunity to sell the Q’s. The price didn’t hit my trigger, and then the market sold off.
I just did a few trades today, as I mostly held onto my shorts and adjusted my Calendar positions.
Here is the run down.
AIG – I own 8 units of the Jan/Feb 55p for an ave price of .54. I sold 1 unit on the open for 1.10 (as per my plan), the was sold a few hrs later for 1.17, and the third and forth for 1.20. I still have 4 units, and now my initial risk is off the table. I still like this trade, as the breakevens for this price level are 52 and 58.30. The Risk/Reward for this trade is 1:5, and that is good by me. There are 9 days remaining in this trade.
USB – I sold 1 – Mar 30p hedge during the sell off for 2.35. I was looking to sell it off the previous low from the beginning of August. I bought 200 sh off the prior lows. I set a tight stop, which has not been hit. Personally, I’d like to see a gap up open. I don’t intend on holding onto these very long.
TTEC- exited this 1 contract Jan 17.5p for .25. It hadn’t worked from the start. I just wanted out of this January option.
C- I started selling my 3 unit hedge. This position was Jan/Mar. I exited unit 1 @ 1.06, and the second @ 1.12. I rolled the 32.5c calendar spread from Jan to Feb yesterday. I could have rolled this hedge position, however I just wanted to bring in the profit of this position to bring my exposure initial risk exposure to less than $200. Now I am there. I can only loose $200, and my upside is a significant multiple of that.
SCHW- I added 3 units of the 25p calendar for .33-.31. After the market began to fall, I did not want to add anymore 25p calendars to this position. I have the 22.5p to hedge. I chose the 25p instead of the 25call calendars because they were .10 cheaper.
I was tempted by CY at the close. Right now CY is sitting on it’s LT trendline. I just didn’t want anymore long delta exposure I am definitely positive delta biased. Fortunately I am also Theta positive. So with each day we sit, I have time working for me. I like that very much.
As it stands, I would like to see a significant bounce. My core strategies work better in a volatile market with lots of chop. They work less well when we see 5-10 days of one way markets.
One thing that is helping weather this volatility is keeping my directional trading strategies very small. If the position runs away from me, yet doesn’t hit my stops I don’t feel the pain. If I max out my position size (5%) I feel too much pain to effectively work my plan. I am finding 1% of a directional play is my limit at this time. I probably could go more with this defined down trend, however it feels like a snap back rally and a surprise fed intervention are right around the corner. I like my current strategy. i.e. keeping my overall acct Theta positive, and my directional bias to the downside.
I do have some put trades which are working very well:
DSL – dropped nearly 2 today, the best part is that it just turned theta positive today. A Feb 30/20p spread turns theta positive below 25. The underlying has broke below any support. It is making new ALL-TIME lows. My price targets are 20, and as low as 10. I will look to sell this again if we see a bounce.
COH – The Mar 35-27.5p spread is new heavily in Theta positive territory. It gains if the underlying stays put or decreases in Value. I will just hold onto this one.
SGMS – Had a great day. My Apr 30p is doing well. An underlying price drop below 30.24 will do heavy damage to this stock is about 1.50 lower than the current price (28.57). The option has doubled at this point, however I will stick to my target price unless there is a fundamental change.
FNM – fell hard today. My price target is 19.75 by Feb 12. Currently it sits @ 31.63. A long way to fall, but that is what my system tells me. A drop below 30.80 would do heavy damage to the underlying, and offer great benefit to my Mar 30-22.5p spread.
I have one more day behind the trade desk this week, then I will be teaching. Very nice…

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