Author Archives: redman59
I write this post with bitterness at helm. This week has left little time to concentrate on markets and instead figure other things out as I knew changes were at hand. Today I just found out I will lose a trading edge attributed to causes mentioned in this post. For the last 3 years in my full-time job I was detailed to a rotating night shift that left me with the availability to do market research at night and trade the markets during the day.
Today I learned that I will no longer have this edge as of Thursday morning I will now be required to work a day shift starting at 6am and working until an unknown time Monday-Friday. This requires me to completely change my strategy as I like to swing trade in options and be frequent to the monitor as I do not rely on limit orders whether in stocks or options.
Now I ask my myself what to do? I love trading and the markets in general. But being away during most of the day leaves me without conversation via social media or in the know until after hours and that sucks as I always liked participation but recent events have left my concentration elsewhere.
While some of you may say trade via limit orders or alerts, I have never trusted these without my own eyes on the situation, ie. ISRG. So now I will try to develop some sort of strategy in long-dated options expiration or in the indices that have lower volatility. I can also look to go back to some pairs trading as well. Either way an adjustment needs to be made and overall this sucks as I know I will be out of the game more than usual for at minimum several months.
Either way it has been fun to be in contact with traders via Twitter/Stocktwits and will try to be as active as possible but these new hours will definitely hinder future engagements.
If you have followed or read my blog I thank you and I will try to to keep updated as much as possible. For right now current obligations will hinder frequency.
Let it be known that I write this post under a hoppy notion (no Rhino session-ales). This week I have been paying close attention to what is (or is not) going on with our politicians. An absolute fucking joke if you ask me. These people are not leaders. I’ve always believed in the military as a fore-front runner in being able to produce true leaders. Example, a 19 year old NCO leading patrols of 13 men in combat zones consisting of MOUT. Situations like these can extrapolate leadership skills to all walks of life.
Now I look at these politicians that cannot come to a decision and must say they have remarkable skills of procrastination. With the latest news it looks like the sequester will take effect. Meanwhile many Americans are saying “How does this affect me?” Honestly besides some slight inconvenience I really don’t think it will, and that’s great because if we can take some trimmings without big consequences that’s good. But what if you have one of those jobs that are looking at a furlough?
This is where I get pissed. Currently I work for the DoD, specifically the Pentagon who are looking to take some of the worst cuts. After talking with supervisors and hearing scuttlebutt I am looking at a 20% cut in my pay check. I will go from a 80 hour pay period (2 weeks) to a 64 hour pay period. If you made $2000 every two weeks you can now look forward to $1600 or a loss of $400 every two weeks and equating to about $800/mo. Hell that’s a nice ride you just bought but is a fucking phantom as you can’t see or feel it.
Needless to say this may not effect the public directly as much but if you work for the government you’re getting the green weenie (military terms in force). Personally I am looking to go from a life of :
- Fine craft beers to Coors Light specials or gas station malt liquors being on BOGO
- Single-Malt Scotch drank neat to Military Special Rum or Vodka mixed heavily with Orange Crush to dilute the roughness
- Fun-filled family nights at the Japanese Hibachi to shrimp flavored Ramen Noodles
- Nights at the batting cage for my son to at home with ping-pong balls and wiffle bat
Mind you I have no problem paying my fair share, only if cuts are across the board. I saw what the sequester will benefit and it’s a joke. Why the fuck did I not see anything about welfare on that cut list. That is another thing that bothered me. I love the days of pioneer (cheers Jeremiah Johnson) as if you were not willing to work or goes by any means to survive, you didn’t. It was true survival. As a nation it is all about “hey if you don’t make it you will be supported”. How the hell am I going to teach my kid about the ethics of hard work when he can see that you will be supported whether you work hard or not?
Maybe I’m just bitter as I am directly affected but let me ask if you were to take 20% of your paycheck would you be upset? Like I said if it were across the board then okay but its not and this sucks. Needless to say I will survive and my family will too but damn I will miss the local butcher shop cuts of beef and now will settle for horse meat….and enjoy your Wal-Marted Great Value peas.
I leave you with this political satire that is probably the best I have seen since Monty Python’s and the Search For The Holy Grail. It is well worth the 3 minutes of your time. Also a song from NOFX:
Well after reading this post from The Fly I guess we plebs in the BN can welcome back Raul3 and Elizamae. I have to say these gentlemen did not get kicked out of a tabbed blog because of lackluster content, it was just a matter of viewership. We must admit gaining 3% of traffic doesn’t seem like much, but be of mind that this is going against some of the top bloggers in trading and finance ..no question about it.
I like to read many blogs and scour around and have a large subscription list in Google Reader and I always flock to the iBC portion first. The posts are consistent and pertain to ongoing market activity. Those tabbed bloggers of iBC prove that there is more to just writing your thoughts and it truly is an art that I have yet to learn. It’s not just about content and these other factors come into play:
- Create a post title that makes the reader want to click and read more
- Have a theme that loyal readers know will be there consistently (ie. chessNwine’s market recap video, RaginCajun’s small bombs list, etc)
- Involve some personal stories that gain some insight to the blogger
- Be active on the social stream to where followers will gain further insight to reading beyond 140 characters
- Do post some content and be humble, know when you’re wrong and don’t be afraid to share
- Have some form of proper grammar and know when to space paragraphs to not make things look cluttered
- Don’t feel like you have to create long blog posts. This is a fast-paced game and a quick 1 minute read is as good as a 5 minute read
Anyway these are some things that I thought of and I need to learn from as well. Congrats to Rhino for continuing on and welcome back Elizamae and Raul3. So you’re back to where you started but at least you made it further than others that were looking. You garnered attention with front page attention and your content is still solid. Either way, hope you get that set of steak knives (no-Miracle Blade II)
No market comments here just a story for the day. After the market close I drove around town(s) collecting some goods for the week. This is when I thought “damn some bratwursted sausages sound good.” So I purchased them from the store and then got home and fired up the Weber charcoal grill, no gas grills at my place.
The problem with the weather here in PA today was that it was mid to high 30′s during the day and raining/sleeting. Miserable weather but I had to have the grilled bratwursts. So I grilled at the edge of the opened garage door as I often do when weather messes up my grilling efforts. I ate the delicious grilled bratwursts and then later in the night proceeded to the garage where it was time for the weight portion of the workout followed by the pushups-situps-pullups routine.
I didn’t want to leave the garage door open for reasons of the weather and I don’t like people looking in my garage while I workout as this in the past has attracted beautiful women that disrupt my routine. So I had to make a decision: put my grill out in the rain or bring my grill inside not thinking the burning coal would do much harm as the coals were dying down. I chose to bring the grill inside.
Throughout the workout I was feeling slightly light-headed but not a crazy unusual occurrence and I was also having a harder time focusing and was more short of breath than usual. I attributed this to a late night of research and an early wake coupled with current exercise. Meanwhile I didn’t really acknowledge the fact that I brought the grill in and this was emitting carbon monoxide.
After completion, about 40 minutes, I went in the house and I was dizzy, light-headed, and exhausted. This is when it occurred to me that the damn grill was slowly poisoning me and I probably was in a deadly toxic environment while pushing my body to exhaustion. So in the process I probably lost some brain cells but in the end it was a good workout and I really enjoyed those bratwursted sausages on a grill that continues to remain rust free.
*I will attribute any future stupid trade decisions to this incident and loss of those brain cells.
Priceline reports 2/26 AMC. Below is a history of PCLN EPS/Revenue estimates and actual reported numbers. PCLN has a history of beating on EPS and revenues except for a couple misses in 2012 and one in 2011.
Looking at competitors of PCLN that have recently reported can give us some insight on expectations of price action (earnings data from StreetInsider):
- EXPE – EPS (miss) revenue (beat); opened down -1.61% and closed -2.67%
- TRIP – EPS (beat) revenue (beat) ; opened down -9.21% and closed -7.14%
- OWW – EPS (miss) revenue (beat); opened up 0.37% and closed +16.67%
- TZOO – EPS (beat) revenue (beat); opened up 4.11% and closed +24.31%
From a competitor standpoint it was a mix on EPS but all beat on revenue. The opening move seemed fairly mute except for TRIP, which saw buyers and hit highs within the first 30min of trading. PCLN was talked about stock on 8/8 when it saw a big gap down and closed near the lows. In this report it missed on revenues but more importantly it guided down for Q3’12 EPS (to which it ended up beating on Q3 release).
For further explanation of the excel tables and data in them please refer to this post.
Looking at the Augen StDev 1min After Open average it is showing 3.75. I like to take this multiplied by the current StDev Move Before Earnings which is showing 13.79.
3.75 * 13.79 = 51.71; this is my expected point move based on prior price action and volatility movements into earnings.
The next table shows implied volatility (IV) moves and looks at the ATM straddle to see what the option market is pricing (I prefer to use the bid for purposes of the worse possible fill). On the far right the green cells represent a win selling the straddle and the red cells represent a loss):
Looking at the data the 2 most recent earnings saw some of the biggest moves on a percentage basis and we are right about where we were back on the 8/7 earnings release in which PCLN saw its biggest move. Some other notes:
- Straddle (going off bid price) is pricing 7.2% move
- ATM Call IV is low comparing to past
- Except for 2 prior earnings the straddle sale has been very profitable and alternated quarters between a win or loss
To me selling volatility doesn’t seem like the better trade here. But I also think that the two prior earnings moves has many with that observation and I like to think when things become too obvious the opposite can happen.
So is volatility a sale? Given the data its a no in my opinion but now that a big move is expected, I believe the opposite will happen. Also the competitors stats have me leaning towards a volatility sale as well, especially when they have had previous big gaps on earnings yet recent release is fairly muted from close to open. I definitely would not sell a straddle unless you can afford a big loss. I personally like selling an Iron Condor (managed risk vs straddle sale).
Looking at the chart (notes on chart):
The chart above has yellow dashed lines showing where I want PCLN to stay within into Friday expiration. The trade I like:
Sell March1 620/625/735/740 Iron Condor for 1.92 credit, risk $308.
Below is the risk profile with red dashed lines representing a 10% move. In this trade I make a profit (at Friday expiration) if PCLN stays within -7.2% to the downside and +9.7% to the upside (all going off EOD data 2/25/2013):
Also you could come in on those strikes for a lower risk, lower probability trade. I like this trade as I am looking for volatility to be a sale and look for the price to stay contained. If I price action goes against my thoughts/expectations then this trade will probably be a loser. Personally I trade and would recommend trading earnings accepting a 100% loss as earnings trades are a gamble in where all you can control is your risk.
While I was absent from the markets on Friday there seemed to be much buzz about LVS in the social media space and across the options market. Much of the action in LVS options is attracted to the March and May option chains. A picture of the March chain is below:
This to me looks like a ratio spread to be confirmed by looking at open interest on Monday. In this spread the trader is buying the March 52.25 calls and selling twice as many March 55 calls for a net debit 0.69c. Also there was action in the May options chain as well. There was a big block of 17,397 calls on the ask for a 2.05 debit. All together the May 52.5 calls saw volume of 27,245 contracts vs open interest of 282. A picture of the T&S can be seen below:
Now that the options action has set the alert, it is time to look at the chart to see if the technicals align with the action:
In the chart we can that LVS has been in a downtrend (annoted by red bars) with a reversal bar (green bar). If LVS breaks above the high of the green bar there is a probability for a continued long trade. If it breaks below the low of the green bar then the downtrend is likely to resume. Note that this is all short-term price action in timeframe of a swing trade. On another note for the bullish side LVS saw a nice hammer candle on the 100ema on volume above average that was confirmed by Fridays candle on volume above average.
So what’s the trade?
In this scenario I like to look at the recent option action, especially the ratio spread. In this trade the trader is looking at the following risk profile with March expiration in mind:
In following this trade I would be looking at upside for LVS as this big trader is looking for it to close between 52.43 and 57.57 at March expiration. The furthest red-dashed line to the left represents current price. This risk profile combined with the May action as annotated above has me leaning bullish in LVS.
My trade recommendation is an upside March call butterfly spread. I personally would trade the same ratio spread but for margin purposes I believe the butterfly spread offers much of the same opportunity without the same margin requirements. I like the March 52.5/55/57.5 call butterfly for a 0.19c debit (max loss $19). This captures approximately the same range for a reduced cost. Risk profile can be seen below:
I really like this trade from a risk:reward standpoint and that it actually follows the big trade that was put on in the March ratio spread. As always this trade is based on my thoughts and the individual trader is responsible for his/her decisions.
In my most recent post titled “Following the Trade – AAPL Trade Adjustment on Friday 2/15” I detailed the ongoing trade that I have on in AAPL. In this post I won’t go into full detail on the trade, reasons for, and adjustments but here are the links in chronological order of those details stated:
- 2/5 - Utilizing Market Comments From Other Traders (put on March 460-480-490 Call Broken Wing Butterfly (BWB) for 4.25 debit)
- 2/11 – Trade Adjustment – APPL (added Feb4/Feb 460 Put Calendar for 1.60 debit)
- 2/15 – Following the Trade – AAPL Trade Adjustment on Friday 2/15 (recap of all the trades and closed the Feb4/Feb 460 Put Calendar for 4.09 credit (+$249.00, +155.6%) and added Feb4/Mar1 440 Put Calendar for 1.69 debit)
Today I closed that Feb4/Mar1 440 Put Calendar in the morning for a 4.40 credit (+$271.00, 160.4%), trade order below:
I wanted to take advantage of the morning weakness and just close out this hedge to the main Broken Wing Butterfly that I had on. With the gains in the 2 calendar trades I put on, the remaining trade of the original BWB is a risk-free trade at a $95 credit. I do not plan to add anymore hedging strategies to this trade and instead will ride out the BWB more and likely to near expiration. In a perfect world AAPL would shoot past then retrace to the 480 level around March expiration, 22 days.
Below is the new risk profile, same look as the original trade with different risk/reward:
Now I sit and wait until March expiration. I could keep adding a hedging strategy but with those 2 calendar trades I am happy with the risk and will let AAPL do its thing leaving the long bias trade on. Below is a trade history:
In doing some reading after the market I came across an interesting post from Bespoke Investment Group titled Key ETF Performance. The table shows the performance of the ETF’s after yesterday’s decline in the markets. In looking at this table, it looks as if everything moved in alignment the way it is expected:
- Sectors – the worst performers were Energy and Materials while the best performers were Consumer Staples and Utilities (the flight to safer assets)
- Euro down and Yen up
- Japan was best global ETF performer while Russia, correlated to natural resources, was the worst performer
- Bonds, which are negative YTD, saw gains across the group
Picture courtesy of Bespoke Investment Group:
Even though it was the biggest down day of the year on volume above average, I like to see that these key ETF’s performed as expected on a macro scale.
Its no secret that gold and the miners (via GDX) took a hit today. All I heard from CNBC was the looming Death Cross (50sma crossing below 200sma). Quite frankly it got old and then there was the FOMC Meeting Minutes that caused further selling on volume in the yellow metal and miners. But was today a capitulation? That is what many seem to be wondering. Today many talked about the rise in the VIX and yes it was big on a relative percentage move in comparison to the SPX.
When looking at the VIX-type instrument for gold we look at the GVZ. Today the GVZ saw a move of 18.03%. Below is a 1 year daily log chart showing the size of the move. Something to note is that GLD really saw this down move accelerate last Friday on the gap below 158, but note what the GVZ has done on the Friday & Tuesday moves in comparison to today:
Also with that I like to look at what the GLD implied volatility (IV) has done in the options, below is an excel screenshot of the rise in volatility since the close of Thursday (data from thinkorswim):
We can see the larger rise on a percentage basis in the near-dated weekly options verse the monthly option chain. Next week expiration showed a rise of 4.03 points (29.94%) in the calls and 4.33 points (31.22%) in the puts. A bigger jump relative to price change than we saw on the previous decline Friday. Personally I’m liking the idea of selling some front month volatility and buying further dated options.
On a chart and price basis, how big was the move today? When looking at volatility of the instrument, many use Bollinger Bands and I like to use them as well. Today it was noted by several on the stream that we closed below the 3rd standard deviation 20 day Bollinger Band. While traders like to use the fat tails of moves as price has been known to walk the band on the 2 standard deviation setting, this isn’t quite so common with the 3rd standard deviation. It is a more rare occurrence that often sees a snap back.
I looked at the last 10 years of data for GLD and a close below the lower 3rd standard deviation band has happened twice, both being in 2012 (yellow arrows mark a close below then back inside the band):
Zoomed in view:
Below is a chart of GLD going back to when we broke out and GLD went parabolic:
I have a correlation to GDX as today it was noted on the stream by several I follow that the metals saw big option buys near the close in ABX, GG, & NEM in the January 2014 chain, search stream with ticker and you will find the posts. ABX stuck out in my mind as January saw buyers of the 40 calls, noted by @OptionsHawk at his website where there are usually 4 free option notes for each day:
These go all the way out to January 2014 so if you were looking to play off some of this information you will definitely want to go out in time and let the trade work. The trades today (2/20) were put on for cheap on an option price basis but are also +1million dollar trades. Either way use diligence if using this info for a trade and keep timeframe in mind.
I made another adjustement to the AAPL trade I currently have on. I will provide a quick recap of risk profiles and charts and I will leave it to the reader to click on the link to read more in detail on why I went long AAPL starting 2/5. I have made 2 adjustments to this trade as of 2/15.
As stated in my first post, “Utilizing Market Comments from Other Traders“, I went long AAPL with options in the form of a Broken Wing Butterfly, below are pictures of my order entry and risk profile:
On 2/11 I made an adjustment (via 460 Put Calendar) to protect from downside action. More into the analysis of the why and what I was looking at can be found in this post, “Trade Adjustment – AAPL“. Below is the order entry with the addition of the risk profile with the adjustment:
**Now for the new trade and adjustment made. **
I rolled that 460 Put Calendar in the afternoon on Friday. The hindsight trade would have been to leave it on for what turned out to be a perfect pin at 460 and max profits achieved. The way I saw it though and playing this Calendar Spread was that I had risk to the upside on the Put Calendar trade if AAPL were to move higher. Below is the 15min chart of AAPL and where I rolled the position:
My order was to close out the 460 Put Calendar and roll to next weeks 440 Put Calendar. On the daily AAPL is still in a long-term downtrend, but also in a low volume pullback on that recent break above 460:
Needless to say I see AAPL as a tough trade. I wasn’t happy with the 450 Put Calendar as a hedge against the current long Broken Wing Butterfly so I went with next week’s 440 Put Calendar, in case we see that whoosh below 450. I then believe 440 will hold on a price and time to expiration basis. Below is my order entry:
I executed this in one order and rolled this position for a 2.40 credit. Broken down:
- closed the 460 Put Calendar (original debit 1.60) at 4.09 (+$249.00, +155.6%)
- opened the 440 Put Calendar at 1.69
- overall a positive gain of $80 with no more risk in the Put Calendar hedge and reducing my cost basis of the original trade of the Call Broken Wing Butterfly from 4.25 to 3.45.
Below is my new risk profile going into Friday expiration 2/22:
Overall I am comfortable with my adjustment allowing for downside protection in case we see that drop in AAPL. The downside is where my risk in the combined trade is and this is what I am looking to protect.