Friday, February 20, 2009

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We hold two covered writes that will yield a theoretical gain of $1,286 if GDX settles $35 or higher today. The profit can still be protected against a drop below $35 by buying two February 35 puts, but I'll leave it up to you to decide how much to pay for them intraday. If GDX appears confidently buoyant above $36, the Feb 35 puts will melt down to nothing quickly as the day wears on. However, if the puts can be bought for 0.10 in the first hour, and especially if the stock is trading 35.75 or lower then, you should buy them just so you can relax. _______ UPDATE: GDX opened strong, so the puts could have been covered for 0.05. If so, you can book a trading profit of $1,276 and buy yourself a good cigar.

We're long the Feb 30-Feb 27.5 put spread twice (or a multiple thereof) for a net credit of 1.30 per. You can handle this any way you please, but the idea is to come out of expiration on Monday with no stock position. That means that if BBY settles between 27.50 and 30.00, you'll become automatically short 200 shares through the exercise of the Feb 30 puts (which you can sell intraday to avoid this). The stock position would be canceled out if BBY finishes below 27.50, since the short Feb 27.50 puts will turn into long stock. (Check with your broker on this, since assignment on in-the-moneys is not automatic if the stock finishes very close to the strike.) _______ UPDATE: The stock settled at 27.90, so the worst you could have done was book a profit of $340 per spread. In practice, however, it would have been fairly easy to improve on that, since BBY traded as low as 27.00 intraday. Buying a Feb 27.50 call (for as little as 0.13) would have effectively locked in a profit of as much as $367 per spread.

This trade caught my eye a few minutes too late to offer as a night-owl special, but I am proferring the chart nonetheless so that you can see how succulent a pattern the euro is capable of creating for scalpers. The key to its appeal is the point 'B' low that has surpassed the two scrunched-up lows to the left. A bounce from the 1.2612 target remains speculative at the moment, and if such a fine pivot were to fail, we would infer that further weakness is likely, perhaps spilling into Friday.

Nothing should have changed our mind about that 6883 target first billboarded here a while back. Looking at this chart, which shows a different view of the pattern than I've offered before, the implied drop of nearly 600 points looks about as likely as the next high tide in Fundy Bay.

The bearish pattern shown has a compelling target at 730.75. We'll make it our minimum downside projection for the near term -- it is a high-confidence number, as far as I'm concerned -- and you can trade it catch-as-catch-can. Be prepared for a potentially nasty bounce from 758.75 on the way down.