Yesterday was a good day for those that did not get shaken out of the market from Monday’s action. It was probably a bad day for those that got eagerly short in portfolio. Yesterday can be a good example of letting the overall momentum shift before jumping the gun. There were some good comments on the stream yesterday from @HCPG:
If you’re looking for a top, wait until you have no more stocks setting up. That’ll likely coincide with any top.
and from @stevenplace:
$SPY potential broadening top. If anything, is indicative of increase in actual market vol stks.co/q1nI
Below is the SPY chart that is referenced in the link:
I must say that I agree with both of these outlooks. It is too soon to go overly short as there are still stocks setting up and breaking out as mentioned by @HCPG. But as @stevenplace mentioned, there will probably be an increase in market volatility. Personally when I see indices making moves like this at a top I try to think from a behavioral standpoint and right now it is telling me to trade light. Also, I am not one to eagerly short either but would rather have more cash if the market sold off instead of always being involved.
With that, I am still in the Amazon (AMZN) position that I have posted about here. I didn’t need to adjust this as yesterday’s action was favorable. Also yesterday I got back into an Apple (AAPL) long position. This was mostly due to current price action and a posts to the stream from @OptionsHawk :
AAPL – Liked what I saw this morning, involved at $444 via calls, held 10 year trend support for 2 weeks, looking for 510
AAPL’s IV30 down 40% since earnings and near 6 month low, see that as bullish, less uncertainty
The last comment really got me interested. With the drop in IV since earnings and 6 months low, the uncertainty was alleviated. I remember in the past there were several traders calling for 425 and that could be justified by the chart. But sometimes we don’t always get what we want and I am liking the current action in AAPL. Yesterday was a good day for AAPL in that it rallied with the markets, something it has really failed to do in this whole market rally. I decided to put on an Call Broken Wing Butterfly. I went out to March expiration with 460-480-490 strikes for a debit of 4.25.
I choose this strategy because I liked the risk involved and it is a bet that AAPL will at least hit 480 by March expiration. This also takes advantage of one of those 40-50 point rips that we could see in AAPL and then at that point I believe the low in AAPL will be established.
Below is the risk profile for the AAPL trade based on a 1-lot. This is a play more on the direction and not so much the greeks as in an income position. The red dashed lines represent a %5 move with the dashed line in the middle being the current price at 0915 hours 02/06/2013: