3 Around 1:30 today I took notice of a pattern that $CI was making.
My journey originated with me leisurely perusing some charts. I was looking for stocks that were showing strength in the face of the morning fade…fading the fade, so to speak.
Somewhat ironically, I kept noticing patterns that, historically speaking, have the look like they are getting exhausted to the upside. I made the decision to follow my gut into the fray and go short.
At once my confidence started to build. Here was a decision that I was making organically, based purely upon an observation I was making. I had started looking for something to get long in, but ended up stumbling onto an interesting scenario that would allow me to put on a position in the opposite direction.
In regard to the exhaustion move I was speaking of…here are some of the elements I look for (this goes for longs or shorts):
- volume has dried up toward the periphery of the most recent range
- pricing indecision just below (above) the most recent swing high ( low)
- reduced volatility (as seen by the contracting Bollinger Bands [20,2])
- clearly defined point at which I’m willing to bail on the trade
- very favorable risk/reward based on the previous point
- a couple of bullshit technical indicators that I use for reference
Based on what I was seeing from $CI around 2PM, I decided to start a position. I decided on the July 45 puts for the decent spread and liquidity. By 2:30 I was 2/3 in, by 3:30 I had put on a full position. 2% portfolio risk. 45.5 is my ‘stop’. Ideally, I’ll hold a portion of this until prices see 42, taking off some along the way. If I don’t see ‘progress’ by Thursday, I’m walking away.
In other news, the $IWM June 76 puts I was nervous about heading into today appreciated by 155.36%, finishing the session at a balmy 1.43. Right at the close I sold 1/4 of my position, reducing my cost basis to 0.83.
So the portfolio, by size, looks like this: $MO, $CI July 45 puts, $IWM June 76 puts, $THLD, $ETP,$ICLR,$CVD, 43% cash.
My best to you all.
-EM
3 Responses to “The Other Organics in Your Organic Strawberries”
schadenfreude
Hey elizamae. I like the overall setup and the stop on a close above 45.5.
I am not sure about the strike / month though. July theta will really start to eat up the contract in about 3 weeks from now. Are you planning on jumping out if / when the stock trades back to swing lows around $42?
If you have a longer time frame, I would probably buy the Oct $43 (36k contracts open!) for $2.6, which will almost certainly show a nice IV surge next month leading up to the August 2 earnings announcement. As price moves you direction, start selling front month theta as price moves down to $42 to lock in profit. You don’t have weeklies on CI, but I bet you could still pay for those Octobers by selling front month.
If I were looking at just trying to catch a quick $2.5 points down though, why not use the June $46? There is some open interest and more delta there, plus you save about .75 or so. And if you really want to shoot from the hip, I bet those June $43 contracts will be up 500% before Thursday if the stock keeps moving in your direction.
Obviously, there is no ‘correct’ or ‘right’ way to trade these fucking things, but just a couple different angles, mostly dependent on time frame.
Best of luck!
elizamae
Luckily I won’t have to worry about what happens in 3 weeks. I’ll be completely out of this trade by next Monday at the latest. My window for shorting stocks is quite small…I am looking for swift moves lower…nothing sustainable.
In this type of market, most of these trades that I post are purely short-term directional bets. I’m looking to catch ‘the turn’ and meat of these moves. July-August 2010 and Aug-Sept 2011 made my years. For some reason I’m comfortable in this environment, so I’m not going to fight it.
Yes, that was me avoiding the detailed options questions that you posed in your comment. Basically I like trading ITM options. The June 43’s are pure riverboat gambling. I like knowing that if this goes against me, I’ll have some cushion in the form of time and the strike price. I know that I’m ‘underinformed’ when it comes to how to best use these things, but I’m just fucking around here with my own $$ anyway. I wouldn’t dare employ this with opm.
Thanks for the thoughtful comment.
schadenfreude
It is the perfect environment for ‘quick hits’ and you can’t go wrong buying naked puts when the VIX explodes 10% at least once every week!
I guess all I am saying is that while going one month out and further ITM does have more intrinsic value in the option, another way of looking at it is with a lower delta, there is also a decreased return even when it does go your way.