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From the monthly archives:
April 2009
We've bought September puts in Google and Microsoft with the goal of spreading them off when the stocks fall. However, since we also expect the broad average to move somewhat higher in the meantime, we can leverage the bullish case by buying out-of-the-money calendar spreads in the Diamonds. Specifically, I am recommending that you buy ...
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An 8343 target flagged here earlier still looks like a good bet to produce a tradable top, although bears had better step aside if that Hidden Pivot resistance is exceeded by more than a few points the first time it’s touched. If that were to happen we’d be looking at a possible finishing stroke to as high as 8569. Alternatively, a fall exceeding 7684 — analogous to the number I’ve given in the E-Mini S&P — could spell serious trouble for bulls.
We narrowly missed buying a September 260 put on a standing order, but it looks like they’ll be cheaper than I’d estimated if Google reaches the 387.70 target, a Hidden Pivot. Let’s roll up one strike price, bidding for a September 270 put. I estimate they’ll be worth around 7.90 if GOOG reaches 387.70, but you may be able to improve on that price by monitoring the option spread closely during the stock’s final approach to the target. I’ve included a chart that shows why a tradable top at or near the target looks very likely. _______ UPDATE (11:10 a.m.) Google’s $24 run-up over the last two days is evidence that the company cannot keep an earnings secret, but don’t hold your breath waiting for the canny insiders who took advantage of it to be prosecuted. In any event, the surge so far has accomplished only what we’d expected all along, driving the stock to a peak this morning that lay within 40 cents of the 387.70 target we identified a couple of weeks ago. The September 270 puts traded down to 8.31, so we’ll carry one officially for 8.40.
No change. We remain focused on an 871.25rally target that can be shorted with a stop-loss as tight as a point (or 2.50 points if you are reversing a long position). The bear rally would be in jeopardy on a print at 824.75, although the bullish target itself will remain viable down to 802.25. Night owls please note: A Hidden Pivot at 841.50 looks very enticing as a place to try bottom-fishing. The futures have just bounced precisely from its sibling midpoint at 846.00, so any breach of that support might be expected to bring ES down to the target. _______ UPDATE (10:35 a.m.): The night owl trade worked like gangbusters, since risking as litle as $50 on the initial stop-loss would have returned as much as $700 per contract. The rally to 855.00 was halted by a minor pivot that looks like it eventually will be surmounted, but there is no evidence of any particular strength today. A Hidden Pivot at 861.75 can be used a a minimum upside target for now.
Our calendar-spread position has gained a mildly bearish bias with the approach of April expiration, so I’ll recommend closing it out on any weakness this morning that brings Goldman down to 120 or lower. In such circumstances you should come away with a net gain of $1,200 or more, but above 120 the theoretical profit would fall by about $110 per point. (It will also increase by $300 per point above 130 because of the vertical call spreads we hold).
With Tea Party protests erupting across the U.S., we wonder whether the anger will mutate into riots once taxes are actually raised. So far, though, and as far as we’re aware, all of those extravagant stimulus packages have yet to cost Joe Taxpayer a dime. How can this be, you ask, when the U.S. Government supposedly has gone trillions of dollars deeper in hock to pay for it all? Some will explain that it’s just “Buy Now, Pay Later!” on an epic scale. But considering that no one has been taxed for all the goodies yet, one could almost » Read the full article
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We’ve been bidding 7.60 for a September 260 put, predicated on a rally to 387.70, a Hidden Pivot target. The option price looks about right, since it was trading for 9.70 when the stock peaked the other day at 379.10. Since my DJIA projection implies another rally leg for the market, we should continue to bid for the put. The goal is to acquire it as Google is making an important high, and then to short a May 260 put against it after the stock has fallen. A single calendar spread legged on at ideal prices has the potential to produce a gain of as much as $4000 with relatively little risk.
Beating the Sleazeballs While He Slept…
by Rick Ackerman on April 17, 2009 12:14 am GMT
From a subscriber in the chat room, here’s a despairing note to those who would attempt to trade the night session: “Good luck in the after-hours market,” he wrote. “Those mother******s run stops like nobody’s business.” True enough, DaBoyz who work the night shift are a sleazy, talented bunch – the kind of predators who frequent poker lounges in pairs, who fix horse races, and who can arrange “dates” for men who get lonely at 2 a.m. in Albuquerque, Kansas City or Philadelphia. We wouldn’t trust one of these guys alone in the house with our pet lizard, let alone have one over for dinner. » Read the full article