#Options – Buying calls and puts

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?

Doesn’t have to be. Not for day traders.

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.

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

$SPY – dead cat or not, the open always matters…

MARKET TIMING SIGNALS FOR 7/18/2019.

Long-Term Breadth (the NYSI): Sell DAY 2
Short-Term Breadth (the NYMO): Buy DAY 1
Price: Buy DAY 1
Nifty-50-Stock-List: 17 BUYS, 9 NEW BUYS, 8 OVERBOUGHT; 32 SELLS, 2 NEW SELLS, 8 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 47, rising, NEUTRAL LEVEL.
Bellwether Stocks: 7 UP, 8 DOWN.

WHAT?

In yesterday’s post it was noted that:

“The market will go down until it doesn’t, and granted, that could be even as early as tomorrow. The VIX remains below 15, which is a bullish level indicating this is likely a pullback and not a serious correction.”

The is pretty much what happened with a gap down before recovering.

While all three of my end-of-the-day signals were on or went to sells on today’s open in options trading and day trading the open always matters.

See the charts below. Color-coding on the these TradeStation charts has been getting simpler and simpler.

Those trades were triggered by the open for each option. They are set for $10K in each trade (what I call the “10KDayTrade” on Twitter) only to make calculating the percentage gains and losses easier. So $10K in 296 call for Friday’s expiration made about $5,900 into the close on the black chart on the left and the brief trade in Friday’s 298 put on the blue chart to the right lost about $900 so the net today across both trades was about 50%.

WHAT NEXT?

Today’s recovery was enough to turn up the NYMO which is a cautious buy signal. I say “cautious” because long-term breadth is declining. Consequently, today’s turn could be a dead-cat bounce with the downward slide resuming in short order. It’s a trade worth taking with a tight, impatient stop — in other words for me it better go my way right away or I’m going away.

At same time, tomorrow’s open, like today’s, is going to matter in both options and day trading. As far as I’m concerned SPY options are always a day trade. Stocks are a different game. Based on today’s close, stocks on my bellwether list to watch for longs tomorrow are AAPL, FSLR, SHOP, TWLO, and NVDA while BABA, WYNN and QCOM may be shorts.

The open for each will tell the story.

(click on the charts below for a larger view)

#MarketTiming – Long-term breadth says sell the rally

MARKET TIMING SIGNALS FOR 7/18/2019.

Long-Term Breadth (NYSI): Sell DAY 1
Short-Term Breadth (NYMO): Sell DAY 3
Price: Sell DAY 2
Nifty-50-Stock-List: 13 BUYS, 1 NEW BUYS, 4 OVERBOUGHT; 37 SELLS, 11 NEW SELLS, 12 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 46, falling, NEUTRAL LEVEL.
Bellwether Stocks: 6 UP, 9 DOWN.

WHAT?

The market took the tumble that been brewing for the past couple of days.

First short-term breadth turned down after a sequence of highs below highs, then price triggered a sell on today’s open, and now long-term breadth has given a sell signal for tomorrow’s open.

That last part is the most significant. Long-term breadth (the NYSI) is the primary context behind the entire market. If it is going up the bulls have the ball, if it is going down the market will tumble too. Maybe not right away — it can whipsaw like anything else, but if it keeps going down most stocks will follow.

Technically the sell signals are on tomorrow’s open but at today’s close this upswing, which began on the open of 6/28 (13 trading days ago), took TQQQ up 8.2%, UPRO up 5.1%, FNGU (the FANG ETF) up 12.4% and TNA remarkably was flat. Among notable stocks TSLA advanced 15.1%, SHOP 7.3%, TWLO 6.1%, WYNN 99%, FB 5.9% and AAPL lagged at up 2.3%.

The Nifty-50-stock-list was a mixed bag with as many stock down double digits as those up double digits. In retrospect that was probably a read on the raggedness of the rally.

However, INS, the number-one stock on the list coming into the upswing vaulted a spectacular 49.4%.

Interesting to note the divergence that registered on the overbought Fear-and-Greed Index, kept by CNN Money, called the exact top two days ago in SPY and in QQQ (see the chart below) and was telling across the board.

WHAT NEXT?

With the NYSI declining, one can only assume swing traders will be looking for short entries, options traders playing puts predominantly (see the post below), and long-term investors should tighten stops to their individual risk tolerance or just hold their breath and hope not to die.

Of note: NFLX after the bell reported earnings, a shortfall in expected subscriptions, and is getting clobbered in overnight trading. That may set a tone for trading tomorrow. Intriguing how often news comes along from somewhere to agree with the NYMO/NYSI breadth indicators.

Nothing much more to say. The market will go down until it doesn’t, and granted, that could be even as early as tomorrow. The VIX remains below 15, which is a bullish level indicating this is likely a pullback and not a serious correction.

(click on the Fear-and-Greed chart below for a larger view)

$SPY #Options – walking the put path in the day trade

The end-of-the-day results: a 116% gain on the two entries, first a cumulative 50% gain on today’s 301 put and finally a 66% gain on today’s 300 put into the close.

$SPY – trudging higher but watching for a reversal day

MARKET TIMING SIGNALS FOR 7/16/2019.

Long-Term Breadth (NYSI): BUY DAY 12
Short-Term Breadth (NYMO): Sell DAY 1
Price: BUY DAY 2
Nifty-50-Stock-List: 20 BUYS, 4 NEW BUYS, 13 OVERBOUGHT; 30 SELLS, 4 NEW SELLS, 11 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 57, falling, GREED LEVEL.
Bellwether Stocks: 11 UP, 4 DOWN.

WHAT?

The market moved sluggishly higher today.

In the case of SPY it was five days in a row, and except for a minor blip in the middle of the advance, TQQQ would be the same. SPY, by my measure, has been overbought for three trading days, which is often all she wrote, but not always.

During this entire move up, my nifty-50 stock list has never had more than 25 stocks on buys. The last time I saw above thirty was two weeks ago (37 on 7/1). Those stocks are trudging through a muddle. That might or might now mean something. Notably TNA, the 3xLeveraged ETF for the Russell small caps has gone nowhere.

Still SPY has managed to make new all-time highs, which is either ragingly bullish, or it’s about to die on the first down day.

WHAT NEXT?

Let’s consider that first day down for a moment, especially since short-term breadth, which has been putting in highs below high (see chart below), turned down today with SPY overbought and up five days in a row (see this many times before a dip).

Trader Vic Sperandeo noted one time that any time a major index goes four or more days in one direction at the end of an intermediate advance or decline the first reversal day is the change of trend. Trouble is I don’t think he ever quite defined what constitutes an intermediate advance or decline. One can look at charts and see he has been right again and again and again but then there is that one time…and that one time can kill anyone who doesn’t play defense. This advance is essentially five weeks old with a minor drop in the middle, projected here in this post below :#MarketTiming – a black candles Thursday leading to….

In addition SPY ended the day in a black candle. The black candle makes today’s high (301.13) and today low (300.19) key numbers, above the former there more rally to come, below the latter a dip to the downside, a easy read of price action. Those highs below highs on the NYMO (again see the chart below) are a warning. There is a divergence in CNN Money’s Fear and Greed Index not confirming the new highs. There’s the Russell stall so far… These things are beginning to pile up.

Five weeks of solid gains may not be the end of the upswing but it is worth guarding against Trader Vic’s “first reversal day.”

All that aside. until long-term breadth turns down, the long side will remain the side to play. Dips are to be bought in the indexes, the ETFs, stocks. Eleven of my bellwether stocks were up today with decent gains, see AAPL, TSLA, SHOP, BABA as examples. So there is still strong buying in big names, which is probably the place to focus most trades.

It always sounds stupid with one says it but it is the one simple, absolute truth — the market will go up until is doesn’t.

(click on the chart for a larger view)

#MarketTiming – a black candles Thursday leading to…

MARKET TIMING SIGNALS FOR 6/21/2019.

Long-Term Breadth (NYSI): BUY DAY 11
Short-Term Breadth (NYMO): BUY DAY 4
Price: BUY DAY 3
Nifty-50-Stock-List: 36 BUYS, 9 NEW BUYS, 28 OVERBOUGHT; 14 SELLS, 6 NEW SELLS, 0 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 473, rising, NEUTRAL LEVEL.
Bellwether Stocks: 13 UP, 2 DOWN.

WHAT?

The market gaped higher again Thursday and for the most part finished higher but…

But most indexes, ETFs, stocks closed below their opens creating black candles on their charts (see the charts below). Black candles are obvious times of indecision springing up oftentimes at the end of up swings.

The three major leveraged ETFs – TQQQ, UPRO, TNA – ended the day black. Seventeen of the stocks, more than a third, of the nifty-50 stock list ended in black candles. Thirteen of the 15 bellwether stocks — AAPL, FB, NFLX, GS, AMZN, SHOP, etc. – were up on the day but fourteen of them ended in black candles.

WHAT NEXT?

As noted before black candles create an easy read for traders as the obvious indecisiveness resolves itself- above the high of the candle, the rally resumes, below the low, it falls back. It’s that simple.

With this much indecision going around, and with the current swing up thirteen days old, and with 28 of the nifty-50 stocks overbought, and with all but three of the bellwether stocks overbought (and the other three already on sells), almost needless to say, it could be time for at least a dip, if not a solid drop.

(click on the chart panel for a larger view)

$SPY – Runs up on a tweet into the FED…

MARKET TIMING SIGNALS FOR 6/19/2019.

Long-Term Breadth (NYSI): BUY DAY 11
Short-Term Breadth (NYMO): BUY DAY 2
Price: BUY DAY 2
Nifty-50-Stock-List: 34 BUYS, 14 NEW BUYS, 26 OVERBOUGHT; 16 SELLS, 1 NEW SELLS, 1 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 44, Rising, FEAR LEVEL.
Bellwether Stocks: 13 UP, 2 DOWN.

WHAT?

The Market ran up today when President Trump tweeted that he and President XI would be meeting at the G-20 conference (like they weren’t going to?) and would discuss the tariff tensions between the US and China. Then it stopped for the day when a Chinese spokesman shortly after basically declared the victory and planned to have no more than lunch with Ding-Dong.

Now there’s a fundamental for you?!

Oh, and it also came out that Trump wanted to fire the head of the Federal Reserve. On the first day of the FOMC meeting that news breaks!

Used to be this kind of uncertainty and instability would tank the market but evidently not now, or at least not yet.

OF PARTICULAR NOTE TODAY:

Stocks followed through another day with more strength to the upside – 26 of the nifty-50 list are now overbought, and 12 of the bellwether stocks up on the day.

NVDA calls led the options day trade with an 82% gain, AAPL ITM calls were up 38%, BABA ITM calls up 26%, and finally the SPY calls also joined the rise, up 52%.

WHAT NEXT?

Tomorrow is a FED day, with the Federal Reserve Open Market Committee making known its policy on interest rates. Any thing can happen in reaction to the FED decision, but given the market is in a positive upswing, tomorrow should be more of the same bullishness no matter what the FED does.

Unless one is an investor, this is a day to sell into the FED if the market’s rising and buy if it is falling. The aftermath for the rest of the week will matter more.

#MarketTiming – back to across-the-board buys…

MARKET TIMING SIGNALS FOR 6/14/2019.

Long-Term Breadth (NYSI): BUY DAY 6
Short-Term Breadth (NYMO): BUY DAY 1
Price: BUY DAY 1
Nifty-50-Stock-List: 18 BUYS, 5 NEW BUYS, 9 OVERBOUGHT; 32 SELLS, 1 NEW SELLS, 3 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 39, RISING, FEAR LEVEL.
Bellwether Stocks: 10 UP, 10 DOWN.

WHAT?

The question in the last market-timing post here was the market due for a Stall or a Drop?.

With barely two days down in the indexes it appears it was merely a stall.

The nifty-50 stock list worked off its overbought condition during the week from 41 stocks on buys Monday (28 overbought) to 15 on buys yesterday. Buy signals in the list clicked up today to 18 on buys with only 9 stocks overbought.

WHAT’S NEXT?

Since long term breadth continues to climb, assume there will be more upside with an up day likely again Friday.

Of particular note: CNN’s “Fear and Greed” Index put in a low above a low today (see its chart below with the Nasdaq Composite) as it works its way higher. It is still at a “fear” level so there is more room to move up.

(click on the chart for a larger view)

#GoldStocks – talking trees when there’s a forest out there…

To state the obvious, most stocks move with the general market, and more obviously almost all stocks move like all stocks in their sector.

And this may be no more obvious than with the gold stocks.

I’m always surprised at the endless discussions of which gold stock to buy. Gold bugs, particularly, love this stuff — this one, or that one, or maybe that one. One stock picker or another has very good arguments for each of their choices, fundamentals, technicals, some buddy’s opinion, whatever, but they all ignore the obvious — they’re talking about trees when there’s a forest out there.

Take a look at the charts below.

Five of those charts are stocks and three are ETFs, but hide the symbols and company names for each chart and who would be able to tell which NEM and which GOLD, which is AEM and which is NUGT? The patterns essentially all look the same (like fir trees in a fir forest).

But actually they are not the same. I have the same swing-trading system on each of those charts. Now look at the numbers in the white flags on the lower left of each chart. Those are the total returns year-to-date per $100K committed to each swing trade (calculated also to easily show percentage gains for the system).

Obviously, there is a difference between the stocks and the ETFs. The leading stock in the sector, KL, is up 17%, while RGLD, lagging, is up only 1.4%; a prominent name like Newmont Mining (NEM) is up 14%. On the other hand, the leveraged ETFs, NUGT and JNUG, are both up 82% and even GDX, not leveraged, is up 25% – same time frame, same trading system.

The trading system here is not the point. It is just here to illustrate that too often traders and investors can’t, as they say, see the forest for the trees.

(CLICK ON THE CHART PANEL FOR A LARGER VIEW)

#MarketTiming – Stall or drop?

Been on vacation so haven’t been able to keep this blog as timely as I would like.

And besides, being in places where there was not even cell-phone coverage, I see I’ve missed a pretty sprightly rally. That’s the way it goes sometimes.

Anyway, TQQQ, my favorite leveraged ETF, is up 21% on the short-term breadth signal (the NYMO), six trading days ago. That signal triggering from double-bottom territory on the NYMO set the stage for the rest of the signals. Consequently, TQQQ is up 12% on its price signal and 8.3% on the long-term breath signal (the NYSI).

See the charts below — from left to right, short-term breadth, price, long-term breadth.

Since the rally’s start on the open of 6/4, other leveraged ETFs of note were SOXL (semiconductors) up 23.7%, FAS (financials) up 11.6% and FNGU (fang stocks) up 25.8%.

Gains among my be “bellwether stocks” were led by TSLA up 20%, coming from deeply oversold, AAPL up 11%, WYNN up 12.4%, SHOP (newly added to my list) up 14.4%, AMD up 14.5% and even a biggie like MSFT was up 9%.

Did I mention that we’re talking just six trading days, from Tuesday last week to Tuesday today? I guess I did. Six days, needless to say, that is what swing trading is all about.

So what now?

Both short-term breadth and price gave sell signals today with much of the market still wildly overbought. Likely we get a pullback starting tomorrow. Or at least a sideways stall to work off the overbought conditions. Note the big black candle of indecision today on the chart to the right. Below the low of that candle it’s a drop, above the high a resumption of the bounce.

If, by chance, this upswing was just more of the thrust from December to make everyone believe the bearish growl last fall was nothing to listen too, I suppose this rally could drop right out of the sky.

Either way, as long as the long-term breadth (the NYSI) is rising, the path of least resistance is up.

(click on the charts for a larger view)