You’ve likely already compared and analyzed market tops with me, but if you haven’t, check out this discussion during After Hours with Option Addict this evening. There are particular signals, metrics, and structures that they tend to follow. Learn how this “top” compares to none of them, as it is not a market top.
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Joined Aug 2, 2009
1,847 Blog Posts
Know a few “retail” capitulated yesterday and today. I myself went long IWM, GOOGL, and AMZN today.
Scanning over the dance floor…
LULU always the looker, ANGI trying her best to get my attention. AMZN, tall and proud, always prepared to rip her top off for shits and giggles. GOOGL, well she crazy but a lot of fun. FEYE, scary but man can she work that DANG. That young gal YELP, she’s the gentleman’s type, waiting for the right one before she gets it on in a hurry. The two new ones, BABA and VSLR, well they are both lookin’ pretty hot in their own right. FSLR, always the demure one, until she gets good and drunk, then the best dancer in the place.
Hat’s off to you OA, it is not easy to be the coach in the 9th inning when the team is down by a few runs. When suddenly, a FAT PITCH appears…
FISH ON!!!
Jeff, quick question on doing a pairs trade with options. Let’s say I was bearish on AAPL and bullish on GOOGL, what is the best way to put on a pairs trade using options? These two stocks were very negatively correlated back when AAPL topped out the first time.
My understanding is that the longer you’re in a hedged trade like this, the stronger the correlation. So you wouldn’t put on a pairs trade only to stay in it for a few hours, or even days possibly. I would think though that 1-2 months of time would be enough to realize a great deal of the correlation. Also, would it work better with ITM or OTM options? Perhaps this is something you can touch on tomorrow during TA Live or in AHWOA. Thanks for your help always, very much appreciated.
The other thing is, perhaps I wouldn’t want to do this on a trade that is negatively correlated…since it increases the risk of losing on both sides. Really just looking for more info on pairs trading in general.
OA,
Thanks for the free presentation. Mrs. 50 will buy the sub. for me as a Christmas present. Can’t wait!
Looking forward to it. Drop me a line anytime.
Pairs trading in options is difficult due to the pricing of options. You are long theta in two trades, so you’d be better to use high delta options. You’d need 2 or 3 months of time.
Yea it just looks kinda of ugly, in the example above, you’d have to do like jan options consisting of 6 aapl puts to 1 googl call at the money .50 delta. Then keep track of your deltas if one goes out of range. I think that’s a big premium to pay to get chopped around and keep track of, then there’s earnings (volatility moves). Maybe spreads is a little better as far as time decay, you’d have to have price targets and then see if it’s worth it. Quality Control Inferno you can be right with options and still lose money, there just seems to be like too many variables here to get right.
Yeah I’d definitely have to go ITM on it like Jeff was saying to neutralize the theta. I’m just not the type of person that can put on a boring hedge trade with stock to try to eek out a few points percentage wise. I’m a degenerate so I need the leverage. 🙂
http://imgur.com/6wrcEvy
Looks like a move north of 40 is possible ie google up 30 apple down 10. Paper trade it first
Very nice.
That’s a cool thing you did with your chart there. I need to mess around with that.
Thanks for the answer. Maybe I should just buy puts on AAPL because I like the setup and vice versa with GOOGL calls and not worry about perfect hedging. I do like GOOGL to outperform though obviously.
OA, stellar AH session today. Sometimes I find myself totally pissed off that I didn’t see the downward move coming and that that account balance is damned to hell. But I hear these sessions and I quickly realize that opportunity is here and I will get a small piece of the action when it really happens, up or down. I personally hope the man behind the market curtain is secretly plotting to hoard all profits from the internetz and biotechs to himself.
Jeff – One thing to consider with this that we should have looked at closer: watching for divergences between the dollar and the S&P. Today they diverged. The market tanked after the open and so too did the dollar. Could be a sign this selloff is ending since so much weight was being placed on the rising dollar and its negative effect on the market.
We did when the dollar rally started weeks ago. I said UUP to $23 based on the 5 year range.
no sorry i meant specifically looking for the day when they diverged. today could have been it.
OA , one indicator that seems to work well is the traffic and comments on iBC at inflection points. Ask Fly to check out site traffic, chart it and share in vegas.
lol @ the troll comment, iBankCoin troll statistical analytics FTW predicting market dips since 2007
TSLA could get very interesting here. Elon Musk teasing a big announcement on October 9th.
https://twitter.com/elonmusk/status/517486950589014016/photo/1
he’s flippin’ out the D
https://www.youtube.com/watch?v=QsmjwRWqZaU&feature=youtu.be&t=2m58s
I can put together that data for Jeff to share in vegas. Lol
Hi OA, I’m trapped in NFLX with Oct. 10’s. Should I roll it or buy a GOOG or FSLR instead?
Thank you,
V
I just looked at the financials for VSLR. Am I seeing it right that they only did $10 MIllion in revenues for the 1st 6 months of 2014 and have a market cap of around $1.7 Billion?
The most pain trade?
Buy the dip as accustomed in all the other 4% pullbacks.
But this pullback is not your usual buy and be rewarded. This is Pavlov’s Dog trickery the market is pulling. There are five waves (Primary) in a bull market (3 up and 2 down) and we’ve just started Primary Wave4 gentlemen and that’s the 2nd down wave that will last months not days. Buying dips will be paramount to catching falling knives. Plan accordingly!
“With Primary IV probably underway the following three support levels should be kept in mind in the months ahead: 1738, 1627 and 1560, with SPX 1627 the most likely. Yes, it can go that low. Short term support drops to the 1929 and 1901 pivots, with resistance at the 1956 and 1973 pivots.”
http://caldaro.wordpress.com/2014/10/01/wednesday-update-459/
Nasty volume pockets to the downside in all major indices and in oil .. we are sitting below prior volume support. Sure we’re oversold and the $USD is overbought, which could lend minor support but the risk for severe downside seems elevated far more than normal.
Maybe money flows out of stocks and into the metals for a bit.
When markets and trading is difficult there is always an Elon Musk trade . Take your pick SCTY or TSLA . Better yet , take them both .
3970 NQ holding up nicely after the retest. higher prices today imo.
OA – I still think there’s going to be a money making environment in the Industrial Metals coming up…. http://i.imgur.com/E75zJxB.jpg
I’m bullish on Copper.
So that’s why CREE looked like it was going to zero, because it is.
@UB thanks for the Volatility vid! Excellent
Gotta be safer with my account this time; not going to do any options for the time being and if I do it’ll only be the 1%
Maybe others have some tweaks to improve this, but if you want a fairly simple fairly robust strategy, just put between 10-30% of account in XIV and 1-3% in OTM SPY puts each on a sliding scale. (if you want less volatility go with between 5-15% XIV and 0.5-1.5% spy puts and increase cash levels, or if you are overly concerned of a 1987 like crash increase your SPY puts a bit relative to your XIV position). I’d go with LEAP puts (6mo+) and roll every 3 month. Hedges are generally supposed to lose money so why lose additional from premium decay (theta burn)?
Example: VIX above 20, you have full 30% position on XIV and reduce your spy put hedge to 1%, vix under 12 you have minimum 10% XIV on and add cheap hedge when premium is cheap to max 3%.
1987 like event, 2008 like event or japan in 1989 type of event could effectively ruin a pure XIV allocation strategy with rebalancing, but the hedge better positions you to capitalize off of a crash through reducing hedge without causing you to use up a huge portion of cash reserves. Look at VIX vs XIV over the last 3 years VIX is basically flat while XIV is up over 600% from low. That is a structural edge like VXX is designed to go down.
Increasing lower and decreasing higher just increases chances of profitability further as your hedge mitigates some of the downside and risk of huge drawdown at a mild relative expense taken away from your potential earnings.
Just consider this your ANCHOR which ties your portfolio to a very profitable system and makes it a lot more difficult to screw up the rest of your portfolio and should make you disciplined and rule based and less emotional.
If you maybe want to trade up to 40% of your account on your own, have up to 30% in XIV strategy and leave over 30% in cash or real low beta stuff (cash, low beta stocks, ETFs, income, occasional risk arbitrage plays, etc) That would be a good way to build back your confidence that you can trade while growing account.
You may choose to sub out XIV for TNA in later stages of bull market if you think market is either going to go 2006-2007 where it rises on rising volatility, or if you think market is going to go parabolic like 2000 as I think TNA will outperform. It doesn’t have the same structural edge as XIV but over very long term market does tend to drift upwards and over the last year of the bull move the leveraged long could easily outperform the XIV.
And what if it does neither of those things, which is most likely?
Danny – glad you saw it. I have full confidence, and am looking forward to your testimonial next Fall…
any thoughts on WTI OA?
I was just going over the bullish percent for energy stocks (now at 20). WTI on a buy signal, not a bad spot to start a position.
Great action today. You all enjoying 🙂
bot BBRY weekly 10’s YOLO @ .04 & .05
so slow, usually it will be long…
$$$$!!!
Hi Jeff,
If FSLR breaks 60 what is the next support level.
If it prints $60, take it off your radar.
Dollar wildly overbought. Gold and miners positive divergence setting up. Small caps getting OBLITERATED.
BUY NUGT!
LONG TNA, JDST
There’s positive risk divergence in the Russell right now. Good sign moving forward.
And nevermind…
Can we put divergence to rest? It hasn’t meant anything all week
divergence never means anything in trending market.
The fade off of some initial buying is disappointing, but there does appear to be divergence from the RUT to the large cap indices. Many deeply oversold issues out there waiting for buyers to step up. The afternoon will be very telling
no volume, no volatility, no fear.
Jeff, has your oscilater fired yet?
best 2 days of profit for me in months! 193 support just broke on the SPY. next stop is 1900. WOWZER
What’s the most painful option? Grind dip buyers 1% at a time.
so far, the exact same script as yesterday. no HLHH even on 1 minute chart. wow.
Anyone have a link to the AHwOA video where he was discussing bullish percent index by sector as contrarian indicator and I think P&F charts too? Long time ago, maybe Jan or Feb of this year?
I’m pretty sure Chess + OA would be the perfect trader. Chess lacks the risk taking with options, OA lacks the carefulness of Chess during volatile times. OA even accepts this as something to happen multiple times a year instead of mitigating the damage on high probability corrections.
Basically, Chess is great at sensing the whole market, and OA is great at knowing which stocks are going to pump high % moves either way.
Combined, I’d buy.
I say this OA, because you have a weakness out of many positves, and it’d be a shame if others with not as much ability to sustain losses would follow you into moments of weakness; but it’s really an easily corrected weakness… sometimes the market’s gonna chop and you have to sit tight while it does with something like options.
Your returns and all your followers would be so much stupidly higher in the end I think; although the boring periods would be terrible to deal with.
Please don’t ban me.
Shut up.
The difference is singles vs. home runs. Read Way of the Turtle. It is a given that draw downs are expected in options trading. They can be up to 50%. But if you capitulate, you might miss that 1000% gain.
Can I point out your weaknesses? Or lack of any strengths?
Now that this is down a bit, this will probably never get read anyways; but, I still am incredibly grateful of the skills you have provided me with. I just think you look at the glass half full in times where standing on the sidelines is warranted.
You have had many years of your life being ultra competitive. But please consider, the market might be out for guys like yourself. Smart, edge seeking… otherwise, people with money in, e.g. tons.
Market might be “out” for me? What does that mean?
wtf….
duuuuude. theres is nothing weaker than the monday morning QB..
Dollar divergence continues. I bought back into TNA at $59.7 for a bounce. We’ll see how strong the bounce is.
Market rallies this afternoon through Friday. Many issues deeply oversold and some of the unwinds really don’t make a lot of sense here. ECB is picking up where the taper left off. Global QE pushing on the dollar. Does the Fed want to put gas on that fire here? Commodity price declines and weak growth make rate hikes more distant. Divergences do matter and volume will return. If rates remain lower longer, multiples will not contract further and will expand near term for the solid growth plays leading to risk on.
Thanks for the thoughful, free and detailed analysis, for proposing a strategy both up and down and for putting yourself on record.
Look for the long tails of reversal hammers by the end of day. Green starting to sprout on my board. Tomorrow brings the relief rally.
I really could use some tail right about now
Sold out VSLR $15.50 for a loss. I’m done with IPOs.
ditto
It’s only been 1 day…unless you’re day trading it or need the money for something else, it’s likely headed for 24 in a few weeks/months.
KNDI: A canary in the bear coal mine?
bot more BBRY weekly 10’s @ .03
try some spy calls here.
full up…
BABA Oct 90’s
TWTR weekly 52’s (next week)
and 500 BBRY weekly 10’s YOLO
New bears about to be tested
Train is leaving the station mother fuckers !!
loaded up… ABBV, GILD, ILMN, HCA, YELP. Some common some calls
was on a plane this morning and got off to see the market getting hammered. Just checked back in and now its’ ripping off the lows. Looks like a big time capitulation bottom.
Cheif, what do you mean by capitulation bottom? Thanks for explaining.
That 30 handle NQ drop in 15 minutes on a -1430 tick.
thats nuts! Looks like that did though and now it’s time to start the shopping list. It’s going to be tough for me to swing this with the wife as I’m on a little getaway!
You deserve it dude. Enjoy.
In short it means it flushed out the weak players who all couldn’t take it anymore and sold. Sign in to Afterhours with OA and I’m sure he’ll cover it.
Will do, thanks Cheif
wow
Rally Rally Rally! Bear trap on the RUT
Not out of the woods just yet,….
Check out GTAT. Bullish engulfment reversal ripping higher.