I have been relaxing this weekend. An excellent PPL event on Saturday, then Oktoberfest in Breckenridge on both days. How can I relax with the market in Turmoil? Easy, I have little exposure in the market right now. On Thursday and Friday I reduced my range bound risk in the market.
I pray than many people out there are benefiting, rather than getting hurt in the current state of affairs. Unfortunately, the establishment teaches us the WRONG way to invest. Now the establishment is going out of business (Lehman Bros, Bear Stearns, and Merrill Lynch). Just buy, it always goes up. Some basic technical analysis would have taught us to get out of the market last January.
One year from the appropriate year…. Black Monday 1987, 2008?
This is my favorite song to play live. Turn on this song at the market open, and Watch this song BEFORE you hit the sell button.
On Friday morning I sold a number of short delta positions in the form of Sept/Nov 68p calendar positions. At the end of the day, after the steady move up I exited my Sept/Nov 75c, and SeptQ/Nov 72c calendars for nice profits. In the process of doing that, an extra 8% risk in my acct is now in cash. And I am 85% in cash, and the combined position delta on the 15% at risk is -175, and as importantly Long VEGA. Thank goodness. The dominant down trend rules the day again. Those trend followers are boring, but wealthy folks.
The reason? I was certain that the LEH news was going to move the market one way or the other. Sunday afternoon – LEH announced bankruptcy, and the counterparties are having to cover all their trades with LEH. I never expected BAC to buy MER. And I am still uncertain if the FED is going be stepping in with an emergency rate cut. At the time of this writing, there is 10 hrs for that to happen prior to the Monday market open. The S&P futures are off 45pts, Dow futures off 350 pts. Wow. The S3 Pivot point on the SP futures is 1217, and Dow future pivot is 11111. As of 9pm MST on Sunday we are there!
Other S&P supports – Person’s Pivots Monthly level- 1213, Weekly level – 1181.
Every Adversity, Every Failure, and Every Heartache carries with it the seed of an equivalent or a greater benefit.
We also have the Dollar dropping versus the Euro. We are up 226 pips on the Euro, after a 240 pip increase on Friday. I am looking to short the euro into the 145 range via the XDE
I was net short going into the weekend, although I thought the risk going into the Friday close was long. A very tough market. I am certainly NOT trying to pick direction right now. The volatility is extreme. I have been trying to play the extreme ranges we have been seeing. I have a number of IWM calendar positions. I will sell my bearish positions as the market crosses them. i.e. IWM 70, I will sell my SeptQ/Nov 70, 68p calendar as the market crosses 69. I also have an IWM double double with a short strike @ 69. I will roll my 69 from SeptQ to Oct. And the double double double has a short SeptQ 76c I will buy back if it is worth .05. And then sell the OCT 76c on any strong snap back rallies.
As with last week, I prefer to take off risk into these radical moves, rather than put more risk on. There is going to tremendous opportunity into the panic of the next 2 or 3 days. I want to keep my head clear, and trade it well and calculated.
Both Poverty an Riches are the offspring of thought. – Napoleon Hill
I look to my SPY road map to help me pick some levels. I have used a fibonacci retracement from the 2003 lows. The 50% and 61.8% retracement is 1189 and 1100 respectively on the SPY.
I will be looking at buying some trades that will take advantage of the Very High volatility we will likely see on Monday and Tuesday. The types of trades I am looking to are Sept Quarterly bullish butterflies. There are also the possibilities of put BWBs below the 1190 level.
IWM – Russell 2000
There is alot of down possible here. But I am thinking that we open around 70, then move down to the 61.8 retracement. My play with the IWM will be to reduce risk, but rolling SeptQuarterly calendars to OCT, and exiting existing Oct/Nov calendars at the 70, 69,and 68 levels as the price moves through them. I think we will see a relatively range bound market here 69 to 74, but I am not putting much money into that opinion.
KO – I have been building this KO Oct/Nov 52.5p calendar position for about a week. I like the probability of success, and the 4:1 reward to risk on this 33 day calendar. The breakevens are nicely outside of breakout ranges.
HSY – Oct/Nov I like this calendar spread as well, although not quite as much. The baseline volatility is relatively high for a calendar. However, even with a Vol Crush test the breakevens come in about 1.50 and I am still good with it.
Well I am going to read, then get some rest. I am enjoy this book!
Change Your Thoughts – Change Your Life: Living the Wisdom of the Tao