The $10K options trade – $SPY today for 103%

Had a loser in the calls to start the day, and another in the puts, but the hard run up in the calls for 180% at the end netted a 103% total gain for the day.

This trade late in the day was in the 267 in-the-money call expiring today, 91 call contracts initially for the loss, then back in for 111 contracts to the close (see chart below).

But if anyone harbors any illusions about this being easy psychologically, divest yourself of those straight away. Trading $10,000 worth of the nearest in-the-money strike at the closest expiration, still has me down 74% for the week, $7,405 on a $10K gamble in each trade after losses of 93% on Monday and 83% on Tuesday. Obviously, it is a strategy that can only be traded with a small portion of any account or portfolio. And even then it is flat out scary at times.

Fast money when it goes your way, and it seems even faster when it goes against you.

(click) on the chart for a larger view)

#SwingTrading – 2-day swing ending with all bellwether stocks in black

The technical end of this trade, started just yesterday on the open, is tomorrow’s open.

But as of today’s close all 12 of my bellwether stocks are in the black so there’s a good chance they will remain in profits barring any over-night news.

Regardless, it is a market signal that runs this strategy so no later than tomorrow’s open a sell for swing traders it will be (would be nice to have a gap up for that).

My “bellwethers” are TSLA, NFLX, AMZN, BID, TWTR, BIDU, AAPL, GS, FB, NVDA, FSLR, BABA. See chart panel below. The white flags on the lower right of each chart is the current profit per 100K committed to the trade (also correlates to a percentage gain).

The current swing is led by BIDU up 4.5%, followed by BABA up 3% and NVDA 2.9%. That’s in two days.

As a side note BABA is up eight days in a row so if there is market weakness tomorrow it is ripe for a day-trade scalp on the short side.

(click on the chart for a larger view)

The $10K Day-Trade – $SPY Options on Fridays

This is all about buying calls and puts for day trades.

And again, ITM 261 SPY weekly option, expiring today, has vaulted past 100% for the day for another trending day (see other posts below).

The white flag on the lower right of the chart below is the dollar gain today so far per $10K traded, also the percentage gain.

The key to these trades is they are day trades in the most liquid call or put, in or at the money, on the nearest expiration to minimize time decay and to get the biggest bang for the buck; using whatever entry a trader is comfortable with, using a stop loss to guard against big losers; and finally taking full or partial profits when one has them, on a breakeven reversal, or on a trailing stop, or into too much strength, but no later than the close of the day.

The day trades on Friday have accounted for 57% of the gains this year.

(click on the chart for a larger view)

$SPY options – massive trending day

In what I have tongue-in-cheek called the “Fool’s Game” I define trending days as any day the system of buying puts or calls goes past a 100% gain.

“THE FOOL’S GAME”

Just now today went flying past 200% on a $10K buy in the 4/25 SPY 268 at-the-money put, expiring tomorrow. See chart below, the white flag on the lower right is the current gain per $10k invested, also the a percentage calculation.

I may have to change the name of this game to “Options Trading with Henry David Thoreau” — as in “simplify, simplify, simplify.”

(click on the chart for a larger view)

$SPY OPTIONS – buying calls and puts in a fool’s game of “dailies”

I was going to do a wrap-up of the returns for the first quarter in what I tongue-in-cheek called “the fool’s game” but decided not to because I doubt anyone would believe it.

Even after trading it (off and on) and tracking it (completely) I have trouble believing how astounding it is myself. See note below.

THE FOOL’S GAME – BUYING CALLS AND PUTS

I had tried trading options 30 years ago when I first started trading and it was obvious I didn’t know what I was doing. After being inundated by deltas and thetas and gammas and IVs, as well as strategies like verticals and calendars and strangles and straddles and busted wing whatevers, iron condors, I got killed ever time I tried to put all that stuff to use. It was just too big a jungle to juggle for the average guy.

It was an iron condor that finally told me I had to quit. How anyone executes a four-legged trade in options, going in and coming out, was way beyond me. It still is.

So what to do? What to do?

Do what I do in every other aspect of my trading for the past 30 years – simplify, simplify, simplify. The market either goes up or it goes down. Why wouldn’t it be the same for options?

But in options one is told BY EVERYONE that in buying puts and calls only three things can happen and two of them are bad. It either goes your way right away (the one good thing) or it goes against you (obviously a bad thing), or it goes no where and dies in time decay (the other really bad thing). What to do? Can’t do anything about the “for you” or the “against you” but time decay can be reduced if not eliminated by day trading. Not much decay with a buy on the open and a sell no later than the close.

Last fall I tracked this on the SPY monthly options, but by the beginning of the year, I tracked and started trading the at-the-money weekly options (for a bigger bang to the buck). Much of the tracking had be done manually and by trial and error because the strikes change often daily with the SPY movements, but the trading could be automated in TradeStation. In looking back at the end of the quarter I discovered that most of the really big winners, which I define as more than a 100% gain on the day, came on Fridays, the day of the weekly expiration (8 out of 14 of the big winners).

The day of the expiration? The thing of it is SPY now has options expiration days on Monday, Wednesday, and Friday. It seems possible the Friday expiration phenomenon could be present Monday and Wednesday too.

Call it day trading the dailies.

Which brings us to today. Granted it was a big one but in options lots of days are big ones. The SPY 263 in-the-money put expiring today netted 238% on my date-trade signal. And the same 263 puts for Wednesday and Friday trailed with 110% and 85% respectively. (The white flags on the right-hand axis in the charts below show the total gain for $10K traded, so chosen to also correspond to a percentage gain.)

Not a bad start to a quarter.

NOTE: Probably should say something about the first quarter in this “fool’s game” just for the record… There were 62 trading days in the quarter with 40 of them profitable for a win rate of 64%. Not going to say how much it made overall (everyone would say “oh, come on, that can’t be!”) but think about these numbers… As I said above there were 14 big winners of 100% or more. The biggest winner in the calls was 252% on 3/9. The biggest winner in the puts was 265% on 2/2. The biggest winning week was the week of 2/5 to 2/9 at 650% and the biggest losing week was 3/12 to 3/16 for a negative 208% (obviously one does not trade this strategy with one’s entire account).

All of this is simply buying calls or puts as day-trades.

(click on the chart for a larger view)

$SPY options – another freaky Friday?

Last Friday, the calls in what I’ve ironically labeled for myself the “Fool’s Game” exploded 250%.

In my post in this link below I noted that going into that Friday, my game was looking at its first losing week this year and there had been no trending day during the week also for the first time this year. I define a trending day as any day either the weekly SPY calls or the puts close with a 100% or more gain.

TRENDING DAYS IN THE FOOL’S GAME

So what’s this week look like? Pretty much the same as last week.

As of today’s close, this day-trading system, buying SPY calls and/or puts, expiring either Wednesday or Friday, is losing money, a jarring 81% for each $10K traded (it was losing 152% at last Thursday’s close). Obviously, one does not trade this with any more than a small portion of any account. In addition, this week again there has been no trending day.

Can last Friday be happening again this week? I’m going to suggest — yes!

SPY is down this week four days in a row (not much) which tends to be a magical number for a turn-around in my experience with swing trading, especially in this bull market. The Nasdaq Comp is down three consecutive days. CNN Finance’s “Fear and Greed” Index is down four days to 21, an “extreme fear” level, a neighborhood in which one should consider going long. Yesterday, 40 of the stocks in my nifty-50 stock list were on sells (that is usually the bottom or the beginning of the bottom in any downswing, however small). Today those stocks clicked up to just 38 on sells. The VIX gave a swing buy signal to go long on tomorrow’s open.

And tomorrow is Friday. There have been twelve trending days by my definition so far this year and seven of them have come on Friday. Freaky.

Added all up, tomorrow looks like a run to the upside again and the calls could go crazy, again, if its another trending day.

Or the market could have a monster fifth-day-down crash…but then that would also be a trending day, only in the puts instead.

#BellwetherStocks – markups in current upswing

Since the current market rally began on the open of February 12th by my market-timing measure, my list of bellwether stocks are all in the black.

Once again, an example of the value of market timing – when the market moves almost all stocks move with it. And if a stock doesn’t, beware the next down swing.

NFLX leads the rally up 30% so far, FB lags up only 4%.

For the rest of the list, see the chart panel below.

(click on the charts for a larger view)

Trending days in the “Fool’s Game”…

The market Friday broke to the upside at the open and never looked back.

As a result it was what I’ve now come to call in my mind a “perfect trending day” in what I ironically call the “Fool’s Game”. That is to say since I started trading and tracking weekly SPY calls and puts solely on as longs and solely as day trades to avoid as much time decay as possible, it is a day when the in-the-money option gains more than 100% on the trend for day.

Friday’s expiring weekly SPY 275 calls vaulted on my day-trading signal into the close for 252% profit on the day trade. That is $25,200 for each $10K traded, in this instance 93 contracts (see the white flag on the lower right of the 10-minute chart below).

Going into Friday, last week’s trading was truly looking like a fool’s game.

From Monday to Thursday, the daily trades were down a cumulative 150% for the week, $15k for each $10k traded, the first weekly loss of the year.

But there had been no trending day during the week, by Thursday no 100% plus day, another first for the year.

And it was also a Friday, when the weekly option expires and there are the most volatile movements. There have been twelve trending days (up and down) in the first ten weeks on this year and five of those days have come on a Friday, making Friday this week once again the best possibility for another trending day.

And so it was to be, as it turned out. Rather spectacularly. For 252%, the second biggest day-trading gain of the year (on February 2nd, the Fool’s Game racked up a 265% gain on a put trade), and turning the loss on the trades for the week into an overall 100% profit.

(click on the chart for a larger view)

#MarketTiming – Can the bounce become a rally?

The pause in the market suggested for this week in last Friday’s post has played out with not a lot of fanfare. It’s been a more sideways than down (see the SPX chart below).

(click on the chart for a larger view)

That is a 7-day 10-minute chart that ends each day with a volume spike on a fast drop into the close. Overall that is not good. But it could be argued that it is still a digestion of the rapid rise that preceded this week and was one of the quickest bounces off a hard decline in this bull market.

If so, time may still be on the bull side.

The Nasdaq Composite had less of a pull back than the SPX but still marked at today’s close four days down in a row. Four days down is often the time for another surge up, and often times during this bull market it is the time the bounce become a rally with an attempt at new highs. In addition, short-term breadth turned up again, taking long-term breadth with it, both very positive signs and they have a lot of room to move up (see the SPY/Market chart below).

In other words, I’m expecting the market to shoot up Friday.

But…as Trader Vic Sperandeo has fondly said: “If the market doesn’t do what it’s expected to do, it will do the opposite twice as much.” So day traders be nimble, swing traders tighten stops, and investors watch your asses — this is not a spot you want to be blindly holding if expectations go awry.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 1).

PRICE: Sell. (Day 4).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Buy, (Day 2).

CONTEXT:

SPY CLOSE – 270.40
QQQ CLOSE – 164.80
CNN MONEY’S FEAR AND GREED INDEX: 15, falling, extreme fear level).
NIFTY-50 STOCK LIST: 16 Buys; 6 Overbought, 3 Oversold, 3 new buys today, 12 new sells.

(click on the chart for a larger view)

#MarketTiming – Time for a bounce…

Just spent a week in New Orleans watching Carnival parades, eating too much food and listening to lots of great music.

So what did I miss in the markets?

Just kidding. Saw all that too. Long time coming but again, just as everyone started to believe it was, it is NOT DIFFERENT THIS TIME.

The question to be answered is was that just a correction after a great bull run or is that the first plunge from a new bear born? Probably the bear is being born but we’ll have to see if it is so in the fullness of time.

For now, after Friday’s further plunged to another new low and reversal back into positive territory, it’s likely the market will bounce this week. How high and for how many days is anyone’s guess but a bounce is what to look for, and, as they say, if one sees what one is looking for, jump all over it.

An important note, the lows and tests of lows last week set up a divergence with short-breadth (see the green circle in the upper section of the chart below). That is an aggressive trader’s buy signal. Works like a charm in bull markets. Doesn’t work all the time in bears. What happens next on that indicator could tell a lot about what kind of market we’re going to have going forward.

All swing signals registered buys Friday but the long-term breadth remains negative indicating so far this bounce will only be a bounce.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 10).

PRICE: Buy. (Day 1).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Buy, (Day 1).

CONTEXT:

SPY CLOSE – 261.50
QQQ CLOSE – 156.10
CNN MONEY’S FEAR AND GREED INDEX: 10, rising, extreme fear level).
NIFTY-50 STOCK LIST: 19 Buys; 2 Overbought, 29 Oversold, 9 new buys today, 6 new sells.

(click on the chart for a larger view)