#OptionsStrategy – #DayTrading $SPY Calls and Puts

Posted on by diogenes227

The contents of this post appeared here last on June 11th. I’m lifting it intact because nothing ever changes in the strategy.

There are so many options strategies in the stock market the head spins – a straddle, a strangle, a naked and/or a covered put and/or call, a calendar, a condor, an iron condor, an iron butterfly (isn’t that a rock band?) and any combination of any of these for hedging purposes, for capital appreciation or preservation, for gambling. Mind boggling.

But buying options…

Buying options, just plain buying a call or a put, everyone will say is a “fool’s game.”

Regardless of whether a trader buys calls or puts on index ETFs like SPY or QQQ or IWM, or buys options on stocks, there are only three things that can happen – the option goes the trader’s way (good), or the option goes against the trader (bad), the option goes sideways with price decay over time (also bad).

Two out of the three possibilities for the option buyer are losers. What fool would want to play that game?

But is it really a fool’s game, like everyone in options trading says?

For day traders it doesn’t have to be. If the trader is persistent, disciplined and experienced, it almost never is.

Let’s take SPY options as the prime example — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is a trend for the day, can be substantial, even rather astounding.

Also great for scalping on any time frame intraday.

Again, the key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable taking.

#MarketTiming – six days up and what now? – UPDATED

Posted on by diogenes227

UPDATE: What now?

As suggested in the post below, I expected the market to move up this week, not as much as it did, but no matter.

Anytime one is on he right side of a six-day swing, either up or down, one cannot complain.

In this case, it’s six days up.

TQQQ, the 3x-leveraged and preferred trading ETF for the Nasdaq, gained 22% on the swing. Some major bellwether stocks have powered the six days, AAPL, MSFT, NVDA, AMZN FB, all up six days in a row; TWLO up six days and 73% on the move is by far the most spectacular example I follow.

Swing trading…what more can you say?

But what now?

This could stop right here. The NYMO was down today (see the chart below). How many times have we seen that mark the end, or at least a pause, after a four or more consecutive days up?

However, the all-important NYSI continues to rise so, unless this is going to drop right out of the sky, it’s probably a pause or a stall — it takes time to work off $2 trillion of Federal Reserve funny money spent in all the wrong places.

This has been a long spectacular rally since March, a fast up characteristic of bear-market rallies. If this is the end bullish traders and long-term investors who believe the bull market lives on will be in great danger.

If the market drops here and takes the NYSI negative, watch out…

An always remember there is no profit until you sell.

(click on the chart for a larger view)

#MarketTiming $SPY – Lost and Stolen Time

Posted on by diogenes227

At month’s end, it is easy to look back and see this last six weeks has been the most volatile down and up market ever.

Six weeks ago on February 19th, the S&P 500 Index (SPX and its ETF, SPY) was at an all time high, and one month later on March20th it was slammed back into 2017.

It has since had a big bounce and is now trying to claw back into the price levels it was at in 2018.

See the chart below. The blue vertical lines mark the relevant price/date the current SPY prices had fallen back to.

This is, this month, three years lost for anyone who has bought had held stocks in the market generally, and, as of today, two years on average.

Some stocks, of course, have done better than others. MSFT dipped into 2019 but is back into this year’s time frame. AAPL wiped out nearly a year of gains but is now back to its level in November of 2019. There others beside these examples but…

…But the price carnage is much more striking on average. So, so many stock have lost two to three years of the gains in the bull market. FB, GOOGL, are at the levels they were in 2017. A troubled company like Boeing, BA, plunged all the way back 2016 and bounced to 2017 on hope of a government bailout.

I don’t know what’s going on at Goldman Sachs, GS, an important bellwether stock and company, but it has plunged to stock levels seen in 2016 and even with the market’s stellar oversold bounce, it is still there.

And I suppose XOM’s stock price, which managed to wipe out 20 years of gains, and is still lodged at the prices it was at in 2004, may be telling us something about the market in general and its sector in particular. I’ve heard long-term investors proclaim that is a screaming buy but then they are not exactly leaping all over it. Could it be because in this time of climate-change awareness, the tide has turned and not as many investors want to own one of the main practitioners killing the planet, which despite what it’s PR says, doesn’t do much else?

XOM now reminds me of the time GM’s stock price peaked in 1965 and didn’t break even until Bill Clinton was President. It fell again in the Bush Administration, as history tells us, on into the 2008 financial crisis and had to be supported and reorganized by Obama in the face of much Republican opposition. And now under Trump, its low this month took the stock back at its prices in 2012, far below the Obama reorganization. What is it with these so called “pro-business” Republicans?

There are a lot of people wishin’ and hopin” the bull will resume and maybe it will. But me thinks those proclaiming the recent bounce and celebrating a new bull market (six days old) are the same stock holders from the past three years hoping the market climbs enough to break them even and let them out.

As I’ve written in this link below Reading history on the #VIX chart… I think it’s going to take more time than those conditioned by the bullish years under Obama and the the continued advance under Trump.

The gains under Trump were wiped out at this month’s low. It was probably inevitable since it was a market running on loose money, artificially-low interest rates, corporate tax cuts to buy back stock instead of attending to business and Presidential blather. If the Coronavirus pandemic had not come along to usurp Trump’s whining for ever lower interest rates, something else would have – still, it is the virus that has revealed how little leadership ability Trump actually has, the virus does not care about misrepresentations, it does not care about Fox-News misinformation, it does not care about Trump’s outright lying, and it can’t read tweets.

If the governors can’t get control of…let’s just call it the Trump Virus from now on…this bear market could go on as long as Trump fights the effort to care for victims and quarantine all the states. Bill Gates, whose foundation has a lot of experience with viruses around the world. said this week every county, EVERY COUNTY, in the country needs to be locked down until the virus is dead and gone.

And in this link below: Reading history on the #MarginDebt chart I contend this bear goes beyond the virus to the unraveling of margin debt under the surface. When over-extended margin debt (it rose higher than it did in 2000 and 2007) unravels it usually is not done until the S&P 500 falls about 50% — and that has not happened…yet.

This what bear markets do. The market has a bullish bias, having risen repeatedly to new highs throughout American history (remember the Mad Men’s “…X-Y-Z is bullish on America”?).

Bear markets do not, so far, do permanent damage, but they do steal time.

(Click on the chart for a larger view)

Reading history on the #VIX chart…

Posted on by diogenes227

Ah, yes, I remember it well… In fact I’ll never forget…

I began investing in the stock market in September of 1987. My wife was having our second child that month. I figured I had to make some financial provisions for the future. I was beginning to make some extra money so I put our savings into the stock market. I bought stock in Compaq and Intel. The stocks were roaring up and continued to rise. I was a very happy young father.

Then about four weeks later on October 19th, the market crashed. In a panic I sold all the stock. That was on the Tuesday after Monday’s crash. That time was in so much chaos it wasn’t until Saturday before I got the fills to learn we had no savings left.

I didn’t tell my wife. She was busy with our newborn. I had a job so we had money coming in. I didn’t want to worry her. But I was virtually catatonic for weeks, until Dec 4th, 1987 (coincidentally our anniversary), when the market made a successful retest of the crash lows.

That was the day I learned what matters most in trading the market – no matter what happens, it’s all happened before.

History, history, history.

There is the famous curse, usually attributed to George Santayana, that “he who does not learn from history is doomed to repeat it.” In the stock market it’s the opposite – “he who learns from history is is blessed to repeat it.”

Which brings us to the VIX, the Volatility Index.

The mass psychology of the market – because money is always at stake – is either in some degree of fear or some degree of greed with both emotions filtered by time.

While history serves as context, the VIX measures the market endless wheeling back and forth between fear and greed. The index itself runs opposite the other major indexes, the S&P500 (the SPX), Dow Jones Industrial Averasge, the Nasdaq Composite…in other words, it runs opposite the market.

When the VIX is low the market is in a bull market, and most stocks are rising, virtually all stocks, and when it is high (as it is now), the market is a bear market, and stocks go down, virtually all stocks.

But the VIX says more than the obvious.

Right now because we’ve just finished a very long bull market there is a lot of belief that the recent stock crash is just a temporary drop and prices will soon be hurtling upwards to new highs.

And yet…right now the VIX says “not so fast.”

Consider the chart below showing the VIX with a monthly chart of the SPX.

I’ve outlined the effect of the VIX on the general market.

First, let me say what I consider the key levels on the VIX itself. Under 15, the market is in a steady advance, a bull market. At 25, the market is in a normal “correction” and the price will soon continue to climb. But if the VIX rises through 25 convincingly and vaults past 40, it ia a bear market. At that point the VIX will have to convincingly fall back through 25 before stocks can in general begin to move up again.

On the chart the red vertical rectangles mark the periods in which the VIX last went through 40 and dropped again below 25. In the 2008 bear market it took eight months before prices began to rise again. Although it doesn’t show here on a monthly chart, a weekly chart of 2010 has the VIX also above 40 (marked by the red circle on this chart) when it took five months for the prices to rise again. In 2012, it took four months for prices to rise gain.

These are measures of time.

I am suggesting this is the time it’s going to take for the current bear market to subside so prices can rise again in a steady climb. Months at best, and even then only for those not holding long term. This crash has caused a lot of damage and a lot of stock holders are trapped at higher levels (the entire advance from the day Trump was inaugurated as President has been erased). William O’Neil of Investor Daily called this “overhead supply,” meaning those holding stock above current prices will be looking for bounces to get out so going forward is going to be a choppy ride and it’s going to take time to work off the effects of the bear.

To say nothing of the fact there are very few signs the market has, as yet, quit falling.

Still, there’s more…

By my reckoning the VIX is also a calendar. The market always has a bullish bias (this is America after all!) but there are months and even years lost along the way.

The shaded blocks on chart below illustrate the time it takes for prices, once the bear market has begun, to regain their former highs. For instance if one invested in the market at the top in mid-2007, it would have taken more than five years to breakeven; in the 2015/2016 and 2018/2019 corrections approximately a year each to regain the losses, or move sideways to new highs.

When the bull is going strong, everyone forgets it takes just one down day for a bear market to begin. Of course, until it’s later and one can look back, no one can know which down day, like February 20th this year, is THE DAY.

Which is also why since December 4th, 1987, as a day and swing trader, and having learned the market’s history, I sell, every time, on the first day down.

(CLICK ON THE CHART FOR A LARGER VIEW)

$SVXY – Just a heads up…

Posted on by diogenes227

If you haven’t been sitting on the edge of your SVXY already, now is the time.

Back in January I did the bookend to this post in this link: $TVIX – Just a heads up… and reiterated it when the explosion began in this link: $TVIX – From heads up to launch up….

TVIX was at 40 or so then and hit a high of 1000 yesterday, while its little sister in the land of leveraged VIX relatives, UVXY started its own spectacular launch from 12 or so and hit 134 yesterday.

There’s only a month of it but enough of this past history. Can anyone hear me laughing at how insane this rum has been? It is time to turn attention to opposite trade on the VIX.

See the charts below.

VIX already is going sideways at an extremely high level but until today TVIX and UVXY didn’t seem to notice. Both took new stabs the highs today and closed below both their respective opens and closes from yesterday. While they haven’t quite broken any trend lines or any reasonable moving average, they both have truly big ugly, ominous, candles.

If TVIX and UVXY didn’t know the VIX might be done with its move until today, it would appear their leveraged counterpart, SVXY, hasn’t quit notice it yet (see the chart). With all this volatility ripping back and forth, it finished up a relatively paltry 3.3% today and produced a perfectly reasonable little white candle.

SVXY goes up as the VIX goes down. If it gets moving it can hit 35 in a flash, and 50 in a quick explosion of its own.

So heads up – there’s a good chance SVXY runs up tomorrow. If not tomorrow, soon…

(click on the chart panel for a larger view)

Short Strangles on Stocks 9/9 – 9/13

Posted on by diogenes227

This week’s short strangles (see chart panel below):

Last week’s short strangles:

Results were for the week but during the week (and FB stopped out at breakeven):

CHART KEY: The number in the yellow flag on the lower right is the cost of the strangle. The number in the white flag on the lower right is the price gain on the position (a negative number on the shorts is a gain). The number in the green flag on the lower left of each chart in the panel is the percentage gain or loss on the price of the strangle (not accounting for margin needed for the position).

(click on chart for a larger view)

#MarginDebt – The Reckoning has arrived…

Posted on by diogenes227

You know those recaps that begin each new episode of TV shows with words like “Previously on Mad Men…Previously on Shameless…” or most appropriately in this case “Previously on Breaking Bad”?

For a year I’ve been watching for the end of this bull bubble and chronicled it’s slow rollover in the links in this link so let’s call this recap “Previously on Margin Debt”:

Margin Debt – the divergence that kills the bull

As has been noted before the trouble with this gauge from FINRA (it used to be from the NYSE) is that it is calculated and released always a month late. So during any given month one pretty much has to guess from price action what’s going on with the margin debt. Given how over extended it was, my guess October’s price action was probably finally killing the bull market (see the link above), and November would probably be the confirmation that the bear was out of it’s nine-year cave. Indeed, it was confirmation and the bear did emerge.

If one stares at the chart below for a while, it’s clear if history is any guide (at least based on the 2000 and 2007 bull bubbles) when margin debt comes apart it does not quit feeding on itself until the SPX declines 40 to 50 percent.

Ai-yi-yi, long-term holders!

But can this time be different? Of course it can. Margin Debt this time is coming down from higher levels than even 2000 and 2007. What if different turns out to be the same as 1929-1932? Talk about a “Presidential cycle” – the last “businessman” to be President was Herbert Hoover who presided over the worst bear market in history.

Different is never really different. It really means all things must change so that all can return to being the same.

America has had magnificent prosperity from 1945 to… Picking a time depends where one sits on the income inequality scale but I suppose for the vast majority of Americans the time was the 1980s when prosperity began to fray, the American dream began to fade. Read an telling opinion piece on this just yesterday – American Capitalism Isn’t Working. Needless to say it can be fixed but the fix is going to take a lot of year now. It’s going to be long climb back and we’ve not even hit bottom.

I could be wrong about this, of course, since market psychology can run amok even in the face of time and all sorts of fundamental foolishness.

In the meantime, as J.P. Morgan so famously put it “the market will fluctuate.” There will continue to be plunges to buy and bounces to sell. For those of us who actively play this game, that’s all that matters to make money.

(click on the chart for a larger view)

$SPY #Options – Trending day trade 34 for 121% on the close

Posted on by diogenes227

The day-trading strategy developed here and dubbed in earlier posts “The Fool’s Game” has now had 34 trending days like today since the start of this year.

I define a trending day as any day the SPY calls or the SPY puts or a combination of both gain more than 100% on the day trade. All trades are long only and closed out at the market’s close.

The 274 in-the-money put for today closed the day trade up 121% on each $10K traded (see the chart on the left below). There were no trades triggered in the calls.

Today’s at-the-money 273 put closed the day trade up 166%.

See the white flags on the lower right of each chart below for the return on each $10K traded and recorded in real time on Twitter.

(click on the charts for a larger view)

$TLRY – When the dummy becomes the genius

Posted on by diogenes227

Can a dummy become a genius?

With the right setup and a dose of luck, in stock trading, of course. Maybe not to the level I am about to chart (see below), but it happens more often one might think.

It’s the setup that creates the luck. And it takes persistence and experience to recognize the opportunity, and discipline to play it out.

In this link in early August – Buying IPOs For Dummies— I suggested the setup:

In the tradition of the “For Dummies” books, I give you the short and sweet on trading and/or investing in IPOs:

Buying into an IPOs is actually one of the easiest decisions in stock investing but never let a broker con you into doing it the day of the offering.

Instead, note the high price and the low price on the first IPO is traded. Those are the lines in the sand or the Darvas box around the first day of trading (see the charts below). The time to buy, invest, is on a close above the high of the first day with a stop loss below the high of the first day.

That is usually a low-risk trade since the real good news comes when the stock proves it can move up from all the hype surrounding the offering itself and if it falls back the stop to exit can close by and obvious – either below the high of the opening day or below the low of the opening day depending one’s own time parameters and risk tolerance.

Whatever the latest stock IPO, there is nothing more to say except maybe “Keep it simple, dummy!”

That having been said, let’s take TLRY (Tilray, Inc.), a timely recent IPO launched in the wake of the Canadian legalization of all marijuana products.

Talking about smokin’ hot! According to the setup (see the chart below), that was a buy at the $29.77 close the day after its IPO day, July 20th. If one happened to gamble on it as it gaped above its IPO high that day at $24.25 or so, all the better. At $29.77 it is now up 400% in two months.

This is a stock!

Granted this doesn’t happen this big this often — this took a MASSIVE DOSE OF LUCK — but it does happen regularly to a lesser degree (maybe I’ll bring up MESA next time).

By the way, if TLRY breaks that fast average on the chart be ready to get out of Dodge. That’s a parabolic and it’s likely to be a violent break. In fact today (at the moment) looks like a blow off. Might want to leave town any minute…

(click on the chart for a larger view)

#MarketTiming – Time for a “Turnaround Tuesday”?

Posted on by diogenes227

There’s an old cliche in the stock market that says after a down Monday, the market turns back up Tuesday.

Everything was up a bit today except the Dow but…

David Bergstrom writing at the excellent “See It Market” website back in June, 2017, (see this link: TUESDAYS MARKET CLICHE OR TRADING EDGE?) added a wriggle to the criteria for a Tuesday Turnaround.

The idea is that the market tends to reverse a Monday selloff or down day with a strong rally on Tuesday hence the name “Turnaround Tuesday”. If this is the case then we can test this idea and add a simple edge to our arsenal.

First, let’s define our “Turnaround”. If Monday’s Close is below Monday’s open then Tuesday should – based on our theory – show positive performance across the stock indexes. On the other hand, Tuesdays following a neutral or positive Monday (close > open) should fare only about randomly or without a strong trading edge.

In the charts below, you can see equity curves for Tuesday trading across the major stock indexes. The first chart follows an up Monday, while the second chart follows a down Monday – or our “Turnaround Tuesday” performance. The blue line represents the S&P 500 futures since 2002.


The charts he presented are these:

Quite impressive Tuesday performance as per his setup.

So what about now?

If one hasn’t guessed, Bergstrom’s set-up for tomorrow is in play. Today’s major indexes, represented by SPY, QQQ, and IWM all closed below their respective opening prices. So if he is right, tomorrow should be up, and possibly it could be the beginning the next market upswing to new highs.

In that latter regard, I will add my own indicators. While the all-important long-term breadth is down, short-term breadth (measured by the McClellan Oscillator), after a series of highs below highs, plunged into oversold Friday (see chart below) and turned up today.

In addition, my nifty-50 stock list saw 40 or more stocks on sell signals two and three days ago, which is usually the bottom of a swing or in this case the beginning of the bottom. There are now 28 on buy signals with 15 triggering buys signals today — the stocks are turning, which often happens before the indexes.

Also, the Nasdaq composite declined coming into today’s little bounce four days in a row. In bull markets that’s about all the steady decline one can expect. This is only the third time it has happened in this very bullish year in the Nasdaq and each time has marked the bottom of the downswing.

Reiterating: tomorrow, Turnaround Tuesday, the market will likely bounce and it could be the beginning of a rally back to new highs.

(Click on the chart for a larger view)