Return of the Option Addict

After a multi-year sabbatical, I’ve decided to reemerge to the blogosphere. Thank you to the good folks at iBC for the opportunity and the little tab on the site with my name on it. It’s been a long time coming.

Let me take the opportunity to introduce myself and give you a little bit of my background and trading style.

I’m one of those who got started in trading in the late 90’s. At the age of 19, I took what little I had and turned it into a small fortune trading options. I started working on the options trading desk at Morgan Stanley with the intent to use them to learn the market as best I could. After a few years as a broker I quit to trade full time. I had a hard time adjusting to becoming a fixture in my house and decided to take a job that would allow me to trade full time simultaneously. I took a job at Investools as a trading room instructor, which later became thinkorswim, which later became TD Ameritrade.  I traveled the country, taught seminars, trading rooms, and finally became content manager as well. I had sick game back then.

I started blogging in 2005. I got the moniker “Option Addict” through my trading style and edgy writing style. My vision was to teach, post my trades, and make fun of those that lost money in easy market conditions. Truth be told, that was when trading was the most fulfilling. I loved it, and loved the presence I had in the blogosphere. I had a big platform and an audience through my blog and through Investools, and in the summer of 2007 I used that platform to warn those that would listen of upcoming death and destruction in the financial markets. I told my readers to buy gold, go to cash, short the banks and the sub-prime mortgage lenders.

In 2008 I had some important decisions to make as I decided to launch an advisory/premium service. I knew the trading landscape was getting ready to change and financial blogging was becoming saturated with retards. The timing of my launch in 2008 made it impossible to juggle both premium services and blogging. It was at that time I made the difficult decision to shut down OptionAddict, which at the time was a fourth child of mine. A decision I’ve come to regret a little.

I still manage www.tradingaddicts.com, which is my advisory/premium service, but I have been itching to do something more creative, fun and fulfilling. I’ve been a long time reader of iBC, and have a lot of respect for the voices spoken here. I’m happy to be joining the ranks.

As for my trading style, I trade options. I am more aggressive than most and that is because my specialty is in stock picking and timing. I am the guy that likes to take advantage of the low volatility environment and leverage big price swings with a long option strategy. I also trade a lot of cheap shitty stocks, so be warned. I’m sitting in trades like GRPN, RSH, FNMA and NBG. Not exactly fundamental superstars…but I have a knack for knowing when they are ready to move.

Through my writings, you’ll learn a lot about options, market timing, how to pick winners and how to manage risk. I am a technical based trader and have a few different methods I’ll teach over the short term.

Thanks again to the team here at iBC, and to Fly. Let’s bank coin.

OA

I couldn’t have scripted a better story heading into tomorrow, and that is another glimmer of hope for the bears as the S&P closed right at the 1000 mark. Following the S&P e-mini futures contract into the close, the last few highs all stopped at 1000. Let them all short the market at the open, only to get crushed at the close. If the market gaps lower at the open, I am looking to buy the S&P into weakness.

I bought into Solar into the close, as these stocks have lagged oil and oil service companies by a day or two over the last few months, but carry a monster beta as I look for continuation in crude. The last big move similar to today’s in the OIH, was followed by an explosive movement in TAN, which tracks the performance of solar stocks. Keep an eye on TSL, CSIQ, LDK and JASO to run tomorrow.

I’ve touched on a few early ideas that worked very well today, energy (NBR, CNX and CNQ + 5-6% respectively) materials (STLD, SCHN, AKS, and GGB + 6-7% respectively) and financials (MS and STT + 3-4% respectively). I like these names to continue higher throughout the week, so don’t book gains just yet.

Continue to look to Copper prices as an indicator of where the market pulls back. Looking at the comparison chart, it ought to let you know at least a day in advance.

As for my longer term outlook, I won’t fight the strength in stocks. Rather, as I mentioned earlier, I’ll be content to make hay while the sun is shining. It’s been tough to tune out the same old dogmatic view of the financial markets, but in order to make money trading, you have to. I’ll continue to ride the momentum until it ends, and hopefully at that point, you’ll have me back for an “S&P 300 Party” in order to help call the bottom.

A big thanks to the Fly, for offering to publish my prose back into the internets, and thank you, the reader, for doing what you do. It was nice to come out of retirement, and the timing was grandiose. Be well.

Option Addict

www.tradingaddicts.com

Copper prices are hot today as most commodities melt higher from a dollar beat down. The JJC, the Copper tracking ETN is up over 4.5% on the day, helping the copper producing equities break out of their recent highs. Stocks such as Freeport McMoran (FCX), Southern Copper (PCU), and Rio Tinto (RTP) are up big across the board, most of which are taking out yearly highs.

The Copper trade has been a hot trade over the last few weeks, but behind the scenes, Copper prices have played a leading role to equity prices, and are one of the reasons why this rally will likely continue higher. Check out the chart below.

Looking at the historical data above, you can see how Copper prices bottomed ahead of stocks, lat last year. At the point of the breakout of the 2 month range in Copper prices, this move signaled the bottom for equity prices. When looking at the charts of FCX, PCU, or RTP, notice how these few stocks bottomed well ahead of the rest of the market, most of which back at the October and November lows.

We’ve been tracking copper prices and how they impact stock prices, and it has been a great leading indicator to stock prices. With Copper trading at 10 month highs, look for the S&P to continue higher with little resistance so long as Copper continues to lead the way. Don’t plan for big pullbacks unless Copper tells you otherwise. Note that while the bearshitters shorted stocks and life itself into the Head & Shoulders pattern, Copper prices were not confirming. This is an important correlation to follow and one that points to higher stock prices.

On the day, energy and materials continues to be the most rewarding court to play ball in. Financials still look strong, holding gains despite heavy trading in BAC and C…but look for some money to rotate into WFC this week. Alongside PNC and MS, this is one of my top picks in the group.

I’ll be back in an hour or so with some closing comments.

Option Addict

For all you day-traders out there, the futures market has been offering an easy way to trade intra-day reversals in equities, treasuries, commodities, and currencies. This signal has been pretty accurate, and more importantly, low risk. Our futures trading strategies are market profile based, but these divergences have helped to increase our futures portfolio returns to better than 130%, while giving us an upper hand in picking intra-day market direction.

This set-up has just occured today when using the S&P e-mini futures contract (/ES) in comparison with the Russell 2000 e-mini futures contract (/TF). Take a look at the charts below…

The divergence is activated while stocks are trending higher. Using the two charts above, the S&P prints a new high (taking cash market hours into consideration only) at 10:32 am, while at the same time, the Russell is well off its highs. This non-confirmation in the Russell signals weakness in the move higher in equities, and can serve as an indicator to close a winning long position. It also, upon a simple break of support, offers a signal to short the S&P, which is already off 5 points since marking that intra-day high.

We also track this signal between the Euro (/6E) and Pound (/6B), and also between 10-year (/ZN) and 30-year (/ZB) Treasuries. The times in which these divergences occur is pretty consistent each day, and the risk is easy to manage, using the relative high in the strong suited contract to manage risk.

Regards,

Option Addict

It’s been over a year since I have last visited the iBankCoin penthouse. I see that the furniture has been upgraded, and a few new faces walk the halls. I’ve gotten comfy in the corinthian leather chair, and have used Fly’s gold and diamond crusted chalice to pour me a cup of Dunkin Donuts coffee. I’ll be providing a little content throughout the day while “Le Fly” returns from vacation. He will be back later tonight. Therefore, I’m here to help you bank coin until further notice.

It appears as if I will be trading from IBC headquarters as the S&P makes it’s glorious print of 1000, and the Nasdaq hits the 2000 mark. Futures are strong ahead of the market open, and crude oil is picking up where it left off last week, ripping higher.

As I approach the market this week, there are a few important themes that I am following. First is energy/materials. I am currently long oil service stocks and steel, as the energy and materials patch will need to play a little catch up this week. The OIH is poised to open up pretty strong, and at the open you ought to take a look at some of the following names I highlighted on my Weekly Watchlist this week. I am looking for breakouts of these recent consolidation patterns… NBR, CNX, and CNQ. The chart below will illustrate the same pattern across all three stocks.

Several oil service stocks will show the pennant formation that has developed over the last week. With crude staging a big comeback over the last few sessions, these stocks ought to be easy breakouts to trade this morning.

In the materials sector, keep a close eye on steel stocks via SLX. A few names that stand-out to me in this group are STLD, SCHN, AKS, and GGB. I am carrying a position in STLD.

The next group I am watching carefully is financials. They made a quiet, but important move last week, making a run up to their recent highs. With tech stocks quieting down last week, I think financials play an important role in keeping the momentum running for the bulls. On a breakout in the XLF, I like the idea of taking on some front month calls in MS, or STT.

As you can see, I’m not going to play any part of the bearshitter role here and tell you why you should fight this tape. Rather, I implore you to make hay while the sun is shining.

I’ve got a lot of content planned today, to fit several different trading styles. I’ll be back with an update shortly.

Regards,

The Option Addict