6/8/2007 – Day 4?

After I wrote my stuff yesterday, I started noticing everyone saying similar things. I don’t really like that. What is coming today? No clue, but I do have plans for 3 different environments.


After I wrote my stuff yesterday, I started noticing everyone saying similar things. I don’t really like that. Here was a story headline from the AP:

Bears Look Set to Trample Wall Street
AP –
Stocks were poised to embark on their fourth straight decline Friday, as stock markets around the world retreated and investors kept an eye on the weakening Treasury market. The Dow industrials have lost more than 400 points in the last three days.

UGG, how is that for mass confirmation.
This mass thinking is not my cup of tea. I want to hear the news media saying, “Bull MKT back in full swing.”
PARIS HILTON – An extreme example of what money can create. Simply a joke. ‘I’m having a nervous breakdown”. “I’m tramatized”. Well yeah, it’s frickin jail, no butler service. She is a joke. That is a reason to sell the market.just kidding. Who says, having real access to the legal system doesn’t have it’s privileges. Hopefully in her case, the courts see the error of their ways and put her back in for her 23 days of “hard time”.
I am putting on Butterfly hedges to work either way the mkt goes. My bias is still down. But I would like to see a rally to create some traders/investors getting caught in the middle of the road with their money in “suitcases” in the form of stocks.
As in Poker, patience is key here. I am certainly not “short stacked”, nor am I ever. I don’t NEED to make a move. Wait for the right hand, with the right R/R, chart, and mkt conditions.
I am stalking an inexpensive bullish entry for BWLD for Sept options. Unfortunately, I missed my bearish july butterfly, that would have been doing very well.
I am also looking to @ June and June Qtrly bearish butterflies as we see a price spike with diminished A/D lines.
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Mid-morning
PDLI – 1 unit of a Jul/Aug Calendar on for .10. The issues are: Very High historical Vol. However, the Vol spread between July to Aug is 7%. That is a comfortable skew. Currently the breakevens are 21.5 and 30.25. With a drop in Vol of 20% (Volatility Crush), the B/E’s are 23.30 and 27.20. Also the Reward to Risk remains high @ 4.5 to 1.
I plan on using a “Calendar Flip” strategy, basically just try to scalp as there are moves in the skew, while keeping on a core position as the skew reverts. This is a very low risk trade, I will only be playing with between 2-3 units so that I can see if there is movement in the spread.
Last year I used this strategy very successfully with KCI, NFLD, and IMCL. KCI -I had rotated the position 5 times in 2 weeks. In addition to rotating 20 lots, I had accumulated 200 spreads for an ave cost of .03, then the spread expanded for a 20x winner in 5 weeks. That was certainly the best trade of the year.
STLD is stabilizing and front month Vol is dropping slightly, the spread is widening slowly. A few of the positions I put on yesterday during the Vol spike are blossoming nicely.
AMTD – with all the merger talk I just took off half the position for a DOUBLE. Nice trade. I will let the other half ride for awhile longer. The price is stuck here for now. Hedge funds want AMTD to sell, the CEO is being “deliberate”. I will let time march on, and hopefully continue collecting Theta decay.
PALM 15p/17.5p calendars are underwater from the Vol Crush. I did get out of half before the crush for a double. So for now these are dead money, however, these positions do collect theta decay. If the stock is around 15 or 17.5, then there is profit for the remaining positions. Perhaps Vol will pick up.
Afternoon –
The markets marched up, like many believed. It touched it’s primary downtrend line, and has now backed off slightly.
EK – has moved up above a consolidation. What a shame. Decision time. 25.90 was the lowest it moved.
As it hit the trend line I put on two SPY butterfly trades. Both were very inexpensive, short term trades.
SPY –
June 148/146/144p for .21. a 5 day trade. $21 at risk per spread with a 8:1 reward to risk ratio.
June Quarterly 149/146/143p a 15 trade. $39 at risk per spread with a 6:1 reward to risk ratio.
I figure these are very low cost trades that can offer great profit potential. I just don’t want to see a grind at the 1500 level. On a drop down in price, I will look at a bullish butterfly for the June quarterly.

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