Is the top in?

Elliot Wave seems to think that the top has come in at 1040 on the S&P as of Friday Aug 28, 2009.

In addition, Demark studies also believes that a major reversal may be set to occur within the next 1-2 weeks.

I actually just came across the Demark studies and I'd have to say I'm glad I've found them because it just adds another tool to my arsenal. Seen pictured above is the TD Combo study. I'm still learning but from what I have gathered a purple 13 means look out for a reversal, and a green 9 says look for a correction. Amazing the weekly time scale called the March 2009 bottom. So I say lets give it a shot and see what it does this time around. Of course these indicators (RSI/MACD/etc. & E-Wave & Demark, etc.) aren't going to guarantee you the right side of the trade 100% of the time, but it's at least best to put the odds in your favor.

If you'd like to follow more detailed analysis on Elliott Wave please check out the following blogs:

http://danericselliottwaves.blogspot.com/

http://kennystechnicalanalysisblog.blogspot.com/

And if you're interested in Demark, here is one that I recently found. Reading through his analysis he seems to be pretty good:

http://dailydemark.wordpress.com/


Lastly here are some additional blurbs running through my head since I do not feel like writing a book right now:

• Shanghai Index down 6%, and we are lucky to go down .06%? How are we going to be manipulated next?
• Is the dollar going to hold trendline support, is it going to form a falling wedge, or is it just going to new lows?
• If the dollar rallies, commodities shorts will should be #1. 
• I'm staying away from financials and would rather be shorting the [over - extended] leader of the rally (Nasdaq)
• The Demark studies D-Wave also has said the top came in on Friday, coincidence?

Lastly here is an updated 1937 chart:

Marvel & Disney Merger

Big news this morning in the entertainment industry. Disney is acquiring Marvel Entertainment for a total of around $4bn in cash and stock. Marvel (MVL) shareholders will get $30 and .745 of Disney (DIS) stock for every share for MVL. Based on this and market inefficiencies, I have made an interesting trade that theoretically is risk free.

At the time of the trade, DIS is trading at 26.51 and MVL at 48.96. I have bought 50 shares of MVL and sold 50 of DIS.

Let us take a look at some math here. If every MVL shareholder is to get $30 + .745 DIS, how much is MVL worth according to these prices? 30 + .745*(26.51) = 49.75
This basically means that there is mispricing in either the DIS or the MVL stock. MVL should be trading at 49.75 or DIS should be at 25.44.

Over time, the market inefficiency will be eliminated (or nearly eliminated) and whether DIS goes down or MVL goes up does not matter to me. If inefficiency is not eliminated, I will get my $30 + .745 DIS which will be worth more than my short sale position and I can walk away with a small profit.

Edit:
After doing further calculations, I realize that I could have made this trade better by trading a better MVL to DIS ratio. As of now, it is obviously a 1:1 ratio. But according to the math below, this ratio should be 50:27

Here is why: If you can buy and sell the correct ratio, you are essentially buying and selling the same thing and should technically not have any cash outlay. Also, the movements in price will be more in sync.

To come up with the ratio, you figure out how much DIS stock you want to sell. I picked 50 arbitrarily. If you sell 50 DIS, you will receive $1325.50. Simply figure out how many MVL you can buy, in terms of DIS. I hope the below calculation will make clearer what I mean.

MVL Stocks to Buy = Cash from selling DIS/(.745*DIS Price + 30)
MVL Stocks to Buy = 1325.50/(.745*26.51+30) = 26.6=27

So, I SHOULD have sold 50 DIS stocks and bought 27 MVL stocks. That really messed up my trade, but I am still making profit looking at current prices ( I did adjust my trade and sold off 20 MVL shares for a small loss).

Of course there is only a profit margin of about 4-5% on this trade. But it is essentially risk free and has very low margin requirements (technically speaking none because MVL = DIS). Can you say arbitrage?

Penny Stock Plays For the Week of 8/31

PKPL UPDATE: Last week was a pretty solid week for PKPL, they locked up the joint venture that I was anticipating and as a result we saw prices run as high as .058 -- However, the interesting thing about last week was that all the action took place so immediately that we closed Friday on a strong 2 day pull back leading into the split which will seemingly take place after today's close (8/31). This puts us in an interesting situation, the price currently sits at .044 and I definitely think we still have room for atleast another 25% jump leading into today's close. HOWEVER because the joint venture has now been confirmed and the price has pulled back quite a bit, I have now shifted my strategy LONG. I think the future is definitely looking promosing for this company so if I don't see this 25% tommorow, my plan is going to be to hold. The few days after the split could still see large profits, although more often than not this is the period of selling off, as I had described earlier. Don't be alarmed, be patient, however you decide to go with this one, in my opinion, is a safe bet. Good luck!

ATNO: Another split? Why not! ATNO is preparing for an 11: 1 SPLIT and as you can already tell, I love profiting off of the short term hysteria that these things can create. This split is scheduled for close on 9/1 so i'm expecting tommorow and Tuesday to be strong up days, anything from .03-.045 is a very solid entry point. And again you can play this either way, (Long & Short) however here I am definitely looking for a nice short term flip. My goal would be to sell my shares at a high on Tuesday. Keep your eyes open for this one and Good Luck!

CWRN: Over the past few months CWRN has been one of my favorite stocks to follow, this is one of the more volatile Penny Stock's that I've run into, but it leaves a lot of room for profitabilty. This thing has absolutely no problem jumping from .0038 - .0052 in one day on absolutely no news (it's a bit wild like that). However, just the other day they dropped this bit of news on us -- Which in a nutshell says that -- they are meeting with China this week in Baja, California to discuss contracts for the shipment of their Iron ore, in addition, they will be sampling crude minerals for testing as part of their plan to get an environmental permit -- Yep, this could get interesting. As of now this stock is sitting at .0038, and during the past month or so of following this thing, I have not seen it dip below .0035 or so. This is a VERY solid entry point!! I typically play this stock both short & long, and my gut tells me that it has the potential to match the prices that were seen in March - May (.02-.07). Unless for some reason this visit in Baja isn't a success (or it is postponed) this is a very very solid play with some very serious profits looming!! Keep your eyes open... The news should be coming either this week or early next week. Good Luck!

Bearish?

Although I'm very well aware the consequences of fighting the trend, I continue to be bearish on the market, and I'm slowing scaling into shorts as we head higher. The past three days we've seen a somewhat bearish candlestick formation setup with two shooting stars and a doji. This could either be very strong consolidation or the beginning of the top.

One always has to remember the capitulation that should occur before a major reversal, however when you are up 23/25 days (not exact, but that's how it feels) and 7 out of the last 7, I'd say that's enough for me to think the permabears have exited their short positions.

Today on CNBC I actually started to hear comments such as the market is in need of a pullback, and the market is ready to go lower, etc., etc. We should all know by now that CNBC is the biggest permabull piece of garbage television out there and even a few of them are turning bearish?

I also subscribe to several newsletters and I cannot recall any being bullish in the intermediate term.

Lastly you have articles like this:
http://www.thestreet.com/story/10590765/1/kass-market-has-likely-topped.html

It appears everyone is expecting a pullback, it is just a matter of when. I'm sure when the volume from Hedge Funds gets back from summer vacation in September that none will be looking to go long at such extended highs, however I'd like to hope we pullback before then. We went from having abnormal days that went up and down 5-6%, to now having abnormal days that go up and down <.5% a day. (......zzzzzzzzzzzzz)

Lastly, I leave you with a chart showing the magnitude of rallies since the great depression. What it does is take the entire % movement of a rally or crash and give the percentage annualized. I figure this is a good measure to test how fast and how far we actually have come up. Amazingly we are around 200% annualized in the S&P right now, the 1932 GREAT DEPRESSION rally didn't even top 160%.

AEO Backratio Call Spread

Another trade I found using prophet chart pattern screener. AEO is American Eagle - another retailer that should have had a good earnings quarter because of back to school shopping. Additionally, yesterday's consumer confidence and retail numbers point to a stronger retail industry. On the other hand there is plenty of speculation about the retail sector being overbought. But, just like the overall market, the bulls are relentless in the sector. Thus, in the very short term, I am bullish on AEO, which leads me into my trade:



As you can see the stock has been trading within the rising channel for about a month. I am entering the position while the stock is at the bottom of the channel. I am concerned that there is a small bear flag within the past week and the earnings report could mean a breakout to the negative for this flag. On the other hand, the past two earnings reports catapulted the stock up significantly.

Overall, I feel the bullish signs outweigh the bearish signs.

The Trade
I bought a back ratio call spread:
Bought 10 Sep09 12.5 Calls for 2.35
Sold 5 Sep09 10 Calls for 4.70

If you do the math, turns out my total cash outlay was a whopping $0 (except commission). That's right, I am able to bet on AEO being bullish without putting out a single dollar. Addtionally, this also buys me some insurance if there is a bear flag breakout. If the stock falls below 12.5, my risk profile reverses and I start losing less. If the stock falls below $10, I break even for the trade. Once again, I am nearly direction neutral.

If the stock rises to around $16, near the top of the channel, I make around $500.

My max loss -at expiration - is $1250. I will not be holding on till expiration and worst case scenario will exit the position if there is a breakout on the bear flag.

I am actually unsure about how to calculate my percent return on this because any money I make (or lose) is technically infinite. My margin requirement is also 0 because I am hedged both ways.

Overall, the best characteristic of this trade is that it is free. Additionally, I am somewhat direction neutral and I particularly like that because there are chances of a breakout in either direction.

Penny Stock Play of the Week: PKPL

PKPL has a forward split currently scheduled for Monday, August 31st (note: it has already been rescheduled once, it could happen again... you've been warned). Nonetheless anyone who has had an experience with a forward split knows that the price tends to build up quite a bit leading into the split and then, of course, as the shares are added the sell off occurs. This split is scheduled for a hefty 10:1, meaning shareholders of record will recieve 10 shares for every 1 share owned. To be a 'shareholder of record' means that you would need to own stock before August 31st (however these stocks have a history of doing a rather inadequate job of living up to their dates, see: the recent AMNE split). My advice would be to follow the progress on this thing over the next few days and set a nice safe limit according to how this stock is reacting and pick up your shares before this Friday's close.

Now there are 2 ways to play this split... The short term play is my favorite and that's done easily by loading up on shares at a low this week (it could be now for all we know) and then selling off at Mondays high before the split occurs (remember, if the split for some reason gets rescheduled again you will see a relatively dangerous pullback, it's the risk we take). The other play is to go long in hopes of the split doing its job of enticing potential stockholders to bite at the lower price, producing higher volumes and a more interesting trading environment when 'the news comes' (information on the progress of their recently announced joint venture should be resurfacing within the next few weeks). However, take into account that you will be depending on your stockbrocker for the delivery of your shares, for instance if you have E-Trade, chances are it will take you a few days before you get your shares and by then most other brokers will have already distributed their shares and those owners will have probably sold out... However, if you are truely going long with this stock, this shouldn't really play much of a factor in your decision (unless the news comes in that 1-3 day span where you have yet to get your shares and you are screwed... again you have been warned). Like I said, I feel the short-term play looks best right now and it should be able to give you some nice bang for your buck, I'm forcasting a solid 15-50% short-term flip (depending on the markets awareness of the split, and how low you are able to get in)

Good Luck!

August 24, 2009 Megaphone Top?

Well we broke through the 38.2% retracement. I'm done trying to call a top, but how convienient would it be if the market decided to drop from here, after a fakeout to take out the stops playing the retracement?

The QQQQ Diagonal

Even though plenty of people out there believe that the market should trace back based on fundamentals as well as technicals, the bulls keep beating the bears. The last week's close broke previous highs and even some very important fibonacci levels. I thought that Monday's blues would kick this market back, but we are up again today. I still feel the market will trace back but now, theoretically speaking, the support is at 1015 for S&P. The main change in my trading thought after this move is that where I did not want to go long at anything above 1000 S&P levels, I believe when the market kicks back, it will fall to this 1000-ish level and then rebound.

Based on this hypothesis, I have entered into a long-term options trade for the QQQQ's.



As I mentioned, the Nasdaq broke previous highs and the 50% fibonacci level which was at 39.65. I particularly like this chart because as you can see, the QQQQ has stopped at nearly every fibonacci level on the way down and up. Thus, I feel this pattern should continue. Based on that, I see the stock moving up 43.50 area or retracing to the 39.50 area. Once again, I am more bullish and am expecting the former rather than the latter.

The Trade
Buy 5 March '10 calls at strike 35 for 6.77
Sell 5 Sep '10 calls at strike 43 for .14.
Total outlay is 3315. My margin req. is 0 which I like because it means I have capital for other trades.

Strategy
My max risk is 3315 which is possible if the QQQQ crash well below 35 level (to somewhere like $10). Highly unlikely so this is a moot point.
I have already captured 2% of the trade with the sale of the call. Not the best payoff, but I know that if the QQQQ doesn't even move, I have made 2% by Sept expiry.
My highest payoff will be at $43. This way I get to keep all my premium and my capital appreciation on the long call is the maximum it can be. At this level, I expect to make a profit of approximately $1000.
Another important part of this trade is that once Sept expiry comes along, I will analyze this trade again and will probably sell more calls based on the QQQQ price level. Thus, I will be creating a monthly income by selling calls until around Jan-Feb (around the time when the time decay starts hurting me). Thus, I can capture 2-5% of my long calls every month.
Overall my strategy is mildly bullish and as long as the QQQQ appreciates in price to somewhere between 42.50-44, this could be a highly profitable trade.

Profit Management on ARO

I had traded a Aeropostale straddle a few days ago just before earnings were released. Yesterday, ARO beat earnings expectations by a mere $.01. However, the stock has jumped up 8.39% today and that has put my ARO straddle in profit. The thing with options is that once you are ITM, managing your profits and capturing as much as possible is a skill too. It is something I am trying to develop and I want to share what my thought process is for this particular case.

Review of original trade:
Bought 5 contracts each of 36 strike calls and puts with Sept expiry.
4.30 net debit per share, total net debit of 2175+24.95= 2199.95.
The Calls cost me $2/contract and puts $2.35.

Below is an intraday chart of ARO as of today:


After this move, my positions are worth:
The Call is at 3.70, and the puts at .75.

I made a killing on the calls but clearly the loss on puts hurt my position a lot. The reason is that I had expected implied volatility to rise along with sudden price movements. Unfortunately, for whatever reason, implied volatility fell. In any case, I am in the money.

On the daily chart, a consolidation is already happening and a pull back may be possible. So I have drawn the trendline which will serve as a guide to me. If the price breaks below that line, I will sell some of the calls and capture the profit. In fact, I have already sold 2 of my 5 calls to neutralize some of my delta and also capture partial profits in case of a pull back.

The puts are still as is. I will hold on to them for about a week and hope that the implied volatility rises or that the underlying price pulls-back significantly in which case I can trade away the puts for only a minor loss. As for the rest of the calls, I will hold them and wait for the price to keep going up so I can make a killing in that way. Preferably, the latter happens because the delta on the puts is negligible (meaning that price movements will have little impact on the puts) while the delta on the calls is now above .7 (meaning for every $1 move in underlying price, my position rises by 70 cents/share).

After trading this position, I also realize I was too late in getting into this position because implied volatility was too high. This is where my excel spreadsheet would have helped and found better trades.


Update 8/28//09

I am now completely out of my ARO position. I sold the rest of the long calls at 5.41 and sold the puts at .50.

My total profit, including commission on this trade was $380. I had a 17% return on the trade while in the same time, the stock went up around 12%. Pretty good trade considering I did not even have to know the direction.

Penny Stocks: Not All Bad

Hello followers, my name is Penny Stock Steve and I am here to help you get a better understanding of the wild world of penny stocks. Although I am admittedly the most inexperienced of group, I feel I can bring a very 'Mike Anthony like' feel to the table, providing my insight on profitable plays in a very matter of fact manner (for those of you who aren't movie buffs, Mike Anthony is Matthew McConaugheys character in "Two For the Money", a movie about sports gambling). Like Mike Anthony, we are all just 'million dollar men with billion dollar plans' except in this case we're talking pennies, and like "Two For the Money" we're definitely talking about a gamble. As you've probably come to realize, penny stocks tend to carry a rather repulsive reputation, and my job here is to help change that culture, turning everybodies pipedream into a reality.

Over the past month or so I have been able to develope a spreadsheet for stocks that I feel are legitimate and have the potential to be extremely profitable. And with this I have been able to calculate my preferred buy and sell points for both the short term and long term. These stocks tend to carry profit jumps ranging anywhere from 30-400% short term, however this requires a great deal of patience and understanding. Penny stocks can fluctuate quite erratically and without much notice, and I've found that most of the people who tell you to avoid these stocks are the same ones who weren't patient enough to hold on long enough to reap the benefits when the bubble popped.

The first stock that I would like to share with you is ETEV. ETEV is a refueling company based out of San Diego, CA and just yesterday they released this and while the news didn't inpact intra-day trading too much, it may be enough to ultimately shift it's current trend, and as you can tell this stock definitely rides on momentum. The report alone is definitely a good indication of how I'd expect the company to continue to grow throughout the 3rd quarter. And suprisingly, this stock is still meandering, at a measly 16 cents, a low mind you. I definitely feel like this thing could turn a nice 130% or so profit in just a few days. Keep your eye out! And good luck!

Spreadsheet Ideas: Next Project

As I learn more about options, I am fascinated by the number of spreads with near guaranteed profits. For instance, I can sell deep OTM puts for AAPL at strike 135 and make nice and steady income on a monthly basis. For example, I sold 5 135 strike puts on AAPL for 1.49 each, for a total credit of 1.49*100*5= 745. AAPL closed today at 166.30. What are the odds that this option expires in the money by September - very low. I am willing to bet that I have that I have that that 745 in my pocket.

The question, however, is how does one find trades like this efficiently? The ThinkOrSwim SpreadHacker does a neat job of finding decent profit-yielding spreads that have minimum risk and a good enough return. But, there MUST be a better way to find these arbitrage trades.

So, over the next few months I am going to (hopefully) develop an excel sheet that can filter through various option spreads and find ones that have maximum profit potential with minimal risk.

To get myself started, I will be working on filtering for the following things:

1. If you do not know, the implied volatilities of various strikes for a given month make a pattern called the volatility smile. The problem is that most stocks do NOT follow this pattern symmetrically. Rather, most equities have high implied volatility for lower strikes and low volatility for higher strikes. So if I can make a sheet that scans for IV's that show the Volatility Smile, I can buy highly profitable Call Diagonals (Buy deep ITM call with long expiry, sell OTM call with short expiry. At the end of short call's expiry, sell the long call).
Alternately, if near the money puts have higher implied volatility than OTM puts, and there is a bullish bias, I could sell the NTM put and buy OTM puts for a nice vertical trade set up.

2. Rapidly rising or falling implied and historical volatilities. There are hundreds of applications to this scan and I will cover 2 of them.
If the implied volatilities are falling very fast, while the historical volatility has not fallen, it may be a good time to go long the options because in theory, the options are cheap (of course there are various other factors, but this sort of analysis would be a good starting point).
If the historical volatility is falling while implied is constant/rising, it may be a good set up for a straddle or ratio spread. This could also be a good scan for flag patterns or consolidation/trend reversals.

Mike had suggested a point system to me before. He was developing a sheet which would give equities points based on various factors such as support/resistance levels, fibonaccis, pivot points, etc. I will try to apply that idea in my sheet as well where the stronger the scan, the more points that spread/equity gets.

It is an ambitious project and I do not know if I can download IV's into an excel spreadsheet. Worse comes to worst, I will have to download historical option prices and run Black Scholes or Ross Cox and calculate the IV's. It will probably take me a long time to make this sort of a sheet, but once complete I hope I will be able to identify near-arbitrage opportunities with the highest payoffs.

Charting the Great Depression vs Today

This is an old chart of mine that I just updated today. Chart Explains itself.

The Markets Reach Resistance

Hello all, I go under the alias as Market Mike. Some have read my posts over at Stocktock while most have never heard of me. I do not daytrade the markets however I have been studying charts pretty intensely for almost 2 years. I do believe experiencing these bear markets have educated most amateurs like myself much more quickly than being involved in a bull market like the one from 2003 - 2007.

With that said I do not daytrade, or play around with this market because I'd be the first one to tell you it can hurt. I'm no expert in Elliott Wave nor am I an expert chartist but I do believe I can offer an opinion and hopefully point out a few things that you may have missed or at least summarize what the others are saying in a more clear way.

One of the most exciting parts of a volatile market is everyone's attempt at calling the extreme tops and bottoms. It is almost like a game, however it can be a very profitable one at that. I'm not here to play the game, but I do want to bring forward to your attention some analysis that I just got done with to show you where I think we are going next in the Equity Markets.

As I pointed out before, I enjoy trying to call the major tops and bottoms in the market because I believe if you have access to the right tools its not very difficult to come up with targets. In fact the March 666 low was a bit unexpected by some, but it was one of my many targets that I had come up with.



Moving on to our current situation. Obviously now we are all looking for when this market is going to top out. I won't get into details about fundamentals and the like, but I do agree we have gone way too far too fast and we are way overdue for a pullback. Elliott Wave predicts a high chance of making new lows, I'm not too sure about that yet, however I am sure we are due for some type of significant countertrend move downward.

1938 vs 2009

Lets first look at an updated picture of the 1938 DJIA Pattern vs the 2009 SPX. I was one of the first to originally find this pattern, and I'll be damned if I'm not one of the last to give up on it.





As I've pointed out in the annotations on the chart, there are still similarities that exist. Back in the 1938 there appeared to be a initial push, a pullback, and then a final exhaustive move to the upside. An A-B-C pattern if you will, finding resistance at each major Fib Retracement. Fast forwarding to today, the same thing is playing out. The timeframe is almost exactly the same as well.

The Importance of 1014
The 1010 to 1020 level is some of the strongest restistance that I've ever seen. Typically when I look at technicals, I'm looking for multiple signals that say the same thing. I try to look at as many as I can, ones that everyone looks at and ones that everyone seem to ignore. However if they are all saying the same thing, it can only lead to one thing, a move downward (in this case at least.)

Exhibit 1: The 200 Monthly Moving Average and the 38.2% Retracement



One thing to take note, is that typically your major moves will retrace exactly to a Fibonacci Retracement. This means a high will touch resistance within a few pennies, and a low will touch support within a few pennies. That is why when I see calls for anything between 1014 - 1121 I tend to shy away from it. However a close on the monthly timeframe is also feasible but less likely.

Exhibit 2: Basic Support/Resistance Levels and Trendlines - Rising Wedge (Bearish) Pattern



Although I forgot to include it in the chart. Anything simple thing to note is that Volume has been decreasing ever since we began rallying. Technical Analysis 101 tells you volume moving opposite to price is never good confirmation for a continued trend move.

Exhibit 3: Fibonacci Extension



This is one of those technical tools not too many people look at however they really should. In fact I couldn't even pull up this tool on Prophet Charts so I had to use TOS. If you consider this countrend move an ABC move, 1010-1014 was a target for the C leg, a 50% extension of the initial move.

Exhibit 4: Putting it all Together



Here is another chart I put together that has most everything that we've seen already. It also includes a Fibonnaci Arc that I've seen floating around. The bright green is line at the 1014 level is the 50% Arc, calculating from the Oct 2007 high to the March 2009 Low.

Lastly, here is one last chart that should convince you all. I accidentally came across it tonight as I was switching from log to normal scale. A chart of the outperforming nasdaq 100 reveals it has hit its trendline dating back to the 2000 high and also has topped out at the 50% retracement.



Now with all this said, I'm not willing to dump all my money going short the market because I could very well be wrong. However I do know I'll not be taken advantage of by this market if it does begin to plunge.

ARO Straddle

The Setup
I found this one using prophet charts in TOS. Below is the chart and then I will explain the basic setup:



There are two main things to note with this:
1. Earnings are coming up on 8/21.
2. A week before earnings, the chart shows plenty of consolidation and is unable to break out of the 38-35.7 range.

This is a good setup for a volatility play because I think after earnings are released the stock should break one way or the other. I am somewhat bullish on ARO because Abercrombie has performed poorly this quarter and the general consensus is that ARO has taken away market share from Abercrombie. Additionally, the charts show a bull flag and one would expect the trend to continue after the consolidation. But, the market has been acting randomly and it has been difficult to find an overall trend lately. As such, I am direction neutral - the perfect setup for a straddle.

However, there are drawbacks to this trade. Even though the stock has consolidated, the implied volatility has risen from about 42% to 47% in the past week. This may seem contradictory but the obvious reason is that people are expecting the stock to make a big move after the earnings and as such the demand for options has risen. This of course means that I had to pay a bigger premium to buy my straddle. I will come back and address this point after I explain what I traded.

The Trade:
Bought 5 contracts each of 36 strike calls and puts with Sept expiry.
4.30 net debit per share, total net debit of 2175+24.95= 2199.95
The premium was still only $4.30/share. This is a mere 12% of the stock price. Additionally, even the consolidation range is upwards of $3. As such I foresee the stock almost certainly moving more than $4.30 over the next month.

Max Profit: Infinite
Max Loss: 2199.95 (With Stops, Max should be 800)

Strategy
Post earnings release, I expect the stock to make a big move in either direction, at which point point I should be able to close this position with a nice profit. I am trading volatility here and below, in the risk profile graph, you can see how increased volatility will help me. Either way, I plan to exit the trade at the latest one week after earnings release (unless I see a continuing trend which I can capitalize.

Theta is hurting me on this trade and thus, I should not hold onto this trade for too long. So, like I said, I will not hold onto this trade after 8/28.

Risk
Volatility Risks:


As you can see, if the price does not move at all but the implied volatility moves up 10%, I will make ~$400 on the trade. I would say those are pretty good odds. Of course, conversely, if the price does not move after earnings, the volatility will probably fall in which case I could lose a lot of money. Thus I must keep a close eye on the implied volatility.

Theta Risk:


Like I said, theta is terrible on this trade. In fact, if the volatility remains constant, I have virtually no chance of profit on this trade.

SSO Straddle

In light of the fact that September is approaching and the correction to the bull market should be around the corner, i decided to buy a straddle on the ProShares SP500. this is double the sP500 returns so has some volatility to it.

here is the trade:
Dec 09 call and put at 32 for a net debit of 7.40.

Risk Profile:



As you can see, i need the stock to move approximately $6 by 9/21 to breakeven. that is nearly 20% of the stock price. I am not too happy with this.

Trade Stats:
Net Debit: 2237.70
Max Loss: To expiration is 2219. however, i plan to sell at max loss of 800.
Max Profit: Infinite
BreakEven: at expiration, not good.

Strategy:
Wait for the sept bear correction. sell the put if in the profit. If by mid sept the correction does not come, get out with small loss. ($~500). i might want to hold on to the call because i do believe in the overall upward trend.

Lessons:
I did not do due dilligence =/
should have weighed the pros and cons better =/
this is somewhat of a gamble. from next time, need to better implement my rules!

PLCM Short Vertical

Got another one from RedOption
PLCM is forming a bull flag after released earnings. jumped like 15% after earnings release so obviously Consolidation is coming. I have drawn a few trend lines and fib retracements on the 6m graph and some important resistance and support levels on the 5d:



Based on this i sold a bulling vertical on a down day hoping to capture the increased vega premium.

here is my trade:
Sold 7 Aug 09 PLCM 25X put at 1.80
bought 7 Aug 09 PLCM 22.5X put at .40
Net credit = 1.40/option
Total net credit = $980 - 39.65= 940.35

Max profit = 940.35 (potentially slightly higher. if the stock makes a break to the up, i could sell the long put).
Max Loss = 770 (potentially lower if i buy back the short put and if it keeps falling i could make a substantial profit.)
Time Horizon: August 22nd

Risk Profile:



Strategy:

Let it ride until aug 22nd. hopefully the stock breaks up from the bull flag. aroudn august 14th, i may want to sell the long call if the price is up.

if the stock falls to 22.5 level, buy back the sold put and hope for an upside down teapot. make sure the premium for buying back is worth the expected profit. it should be because the vega should have deteriorated the 25 puts value.

lessons learned applied: i analyzed straddles, long call verts and short put verts with various strikes until finiding this.
theta is in my favor this time and hopefully kicks ass.

Barrick Gold CP - ABX

From ShadowTrader:
August 3, 2009

Company: Barrick Gold (ABX)
Action: Buy the stock
Shares: 150
Price: 35.81
Stop: 32.41
Target: 43.00

Trade Explanation: Gold has reversed to the upside again, much to our chagrin!. If indeed this 3rd time is the charm, then mining names will rally along with the metal. ABX is long here over last week's high with a stop under last week's low.

Gold:
       
I can see what RO was talking about. nice bullish pattern set up here.


ABX:
       
Once again, head and shoulders are there. Fibonacci 23.6% is about to break and if it does I expect a rally to $38.74 - if not higher.


SMA 10 broke above SMA 40 and for this particular stock has been a good indicator.

Based on this, I bought a bullish Vertical as such:
Buy - 10 August 09 36X Calls @ 1.50
Sell - 10 August 09 38X Calls @ .65
Total Net Debit: .85*100*10= $850 + 39.95 = $889.95
Max Loss: 889.95
Max Profit: (38-36)*10*100= $2000
-889.95
=1110.05
Time Horizon: August 14th.


Risk Profile:


Strategy:

If stock advances to more than $38, exercise long call and sell. This will achieve max profit.
If Stock falls to $34 level, Sell long call and hope to take as little a loss as possible. Risk profile says an approximate loss of $750. This is consistent with max 2% loss.
If on Aug 14th no significant price action has occurred, sell long call. Analyze short call position and determine whether to close that or not. If close is needed additional investment may be required.