Oy, indeud.  My nuts are cracked.

Oddly appropriate then is that tonight was our annual/traditional trip to attend the SF Ballet’s performance of The Nutcracker.  Their production is slightly altered from the “norm,” in that they set it at the 1915 SanFran World’s Fair and they remove any of the more sinister hints/overtones that the original productions may have had (cause you know how those Germans like their fairy-tales!).  Everything’s all nice & fantastical, which I guess is appropriate for Christmas.

And it’s not like I needed any help in inventing further porfolio demons to sap me of hard-earned profits via the slow drip-drip-drip death of low volatility and general market indecisiveness…

The net value took another 0.75% hit today, while the booked value is back down to -5%, matching the previous month-to-date low from 10 days ago.

A glimmer of hope for the rest of the month is that after today’s trades, I’m almost perfectly delta neutral and thus ready to profit in either direction…as long as there IS a direction (flat market = no direction).  Rally or Crash, I don’t care.  Just do it already!

With only a few true trading days left, I don’t have any illusions of being able to eke out a positive month…but I’d very much like to prevent any further losses.

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$VIX ALERT BREAK!

As pointed last week, the $VIX has been using the nice/even/whole number of 20 as recent support.  Having now bounced off of it 3-4 times (including last Thursday), it may be useful to note that we’re once again back, right near 20, ready to re-test:

A $VIX bounce would almost certainly correlate with another dip or minor selloff.  Proponents of a closer/causal $VIX-SPY relationship would advocate that we can only resume the rally if the $VIX breaks 20.  Conversely, if it bounces hard…well…watch out below!

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$CPCI ALERT

After 2 weeks of inaction, we’ve got life in the index put:call ratio!!  Tonight’s reading was a miniscule 0.74, which is signalling overly bullish sentiment (more than 2 std.dev.’s away from the 6-mo. mean of 1.34).

My contention, as always, is that this is a contrarian indicator, thus I will be acquiring some SPY puts at tomorrow’s open.  The Feb’10 111.’s look like they will be the most ATM, therefore they are the chosen ones.

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The ugly truth:

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I’m including a few charts to make it easier for you to take the opposite trade:

Long Calls:

Buffalo Wild Wings – BWLD (@41.75)

Ciena Corp – CIEN (@11.33)

Lennar Corp – LEN (@12.75)

Also:  AAPL (@196.50), AMZN (130.09), GS (@163.63), XOM (@68.86)

Long Puts:

Cree, Inc – CREE (@50.42)

Also:  FST (@21.75), UNH (@31.)

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SEE IT!

NOW!

GO!

[youtube:http://www.youtube.com/watch?v=cRdxXPV9GNQ 600 450]

Believe all the hype, boys and girls!  This movie is the fucking TREUTH [sic].

No, it is not the greatest story ever told.

No, it is not the most eloquently written script.

But by god…if it isn’t the most beautiful/immersive/extraordinary movie experience of all time!  And even Kanye West would agree with that statement.

$18/ticket seemed like highway robbery when I bought them 2 days ago…by the movie’s end, I would’ve gladly paid twice that much to see it again right away.

Remember when you saw dinosaurs walk in Jurrasic Park?  This is better.

Remember when you saw the T-1000 do all its tricks in T2?  This is better.

Remember when you saw the battles in the LotR trilogy?  This is better.

I dare you to bring up a special effects milestone from movie history…because AVATAR will blow it out of the water.  This is Star Wars for the next generation.  A classic story retold in the most spectacular way possible.

And unlike many of today’s SFX-fests (yes, I’m looking at you, Transformers), AVATAR contains a compelling story that, while predictable, keeps you invested emotionally.  The likeable Sam Worthington & the stunning Zoe Saldana carry the movie with surprising ease as the male & female leads…even when they present themselves to the audience as 10-foot blue-skinned giants.  You’ll cheer the good guys, boo the bad guys, get tears in your eyes at the appropriate moments, and may even applaud at the end of what seems like a short 3 hours.

And James Cameron proves that after 12 years and half a billion dollars, he is STILL…”King of the World.“

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Might as well get this ugly situation out of the way, so that I don’t have to think too much about it for the rest of the weekend.

Long story short, the portfolio continues to die a death by thousand needless thanks to the listless market and the absolute lack of volatility out there (while the $VIX did get a slight boost on Thursday, all that got erased on Friday – all told, the $VIX changed a net total of 0.09 points, or 0.5% during the week).

The day’s early action led to fills in a few new bearish positions, while stopping me out of FCX calls.  I now await the new week with much trepidation…heavily biased to the short side into Christmas – surely, this is MADNESS!

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Maximum Pain is one of those lovely/wacky theories out there in options-land:  unproven, anecdotal, sometimes true & awe/fear/anger-inspiring.  It’s essentially a big ‘FUCK YOU‘ to the option-buying public from the Market Makers/assumed option sellers/hedgers.  Yes, the market is indeed out to get you.  Depending on your mindset, that may strike a cord…

The theory mostly stems from the general assumption/old-wives’-tale that [make up a percentage, say 80%] of all options expire worthless on Expiration Friday (like today).  While this is patently untrue (the vast majority of options are traded, rather than held, well before expiration), the idea/myth/legend remains.

And sure, no doubt there’s something to it.  Afterall, most options are sold by the BIG BOYS who leverage them against vast quantities of underlying stock…so, theoretically, if they wanted to truly manipulate the market, they could sell/buy the underlying as needed.  As net sellers of options, they would definitely have vested interest in seeing as many of those expire worthless as possible.

It’s at that this point that we have Max Pain for the little guy.  It can be found by calculating the total dollar value of all open contracts (based on open interest vs. strike price).  Whichever strike gives the LOWEST total value (held by the options buyers) is the point of Max Pain.  At this point, the sellers maximize their gain, while the buyers/suckers maximize their pain.

Easy-peasy.  Luckily, you don’t have to calculate this by hand…the internet is your friend & valuable resource!  Optionistics has an excellent online calculator/grapher, although they call it the “Strike Pegger” (the price to which the underlying will get pegged in order to cause Max Pain).

Even if this sounds a little too far fetched for you, it’s something that you might want to keep in mind as you head into this year’s last (& triple witching) options expiration Friday.  So let’s take a look at a few high (options) volume names and see how close we get to the predicted “pegs.”

SPY – Max Pain:  108. (with a positive bias)
Change needed to hit peg:  -2%

QQQQ – Max Pain:  43 (with a negative bias)
Change needed to hit peg:  -1.87%

C – Max Pain:  4. (with a negative bias)
Change needed to hit peg:  25%

AAPL – Max Pain:  195. (with a negative bias)
Change needed to hit peg:  1.64%

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Just as suggested by the $VIX and the continuing $CPCI inaction (now in its 9th straight day), we got a bit of selloff/dip on Thursday.  Predictably, my bearish puts did well, while quite a few of the bullish calls took a hit.  In the final reckoning, the net/present value remained flat, while the booked value took a slight hit thanks to the stop loss in ENER (should’ve doubled down on those calls when I had the chance & entry on Dec.8th – I passed up that opportunity, much to my chagrin).

The 2 sold positions were replaced by 2 new bearish put positions, further increasing the negative bias.  Looks like I just can’t get away from this theme…not sure who/what to blame…looks like I just need to ride out the flat/banal market until we get some directional action come January(?).

Orders lined up for tomorrow include bearish trades exclusively:

• puts: GOOG (@590.), NRG (@25.22), PCLN (@212.40), STP (@16.75), X (@48.)
• calls:  SRS (@8.08)

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