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Topic of the Week
TODAY'S ACTION for Friday
Rick's Picks for Friday
All our ducks are in line now that we’ve successfully legged into the December 12.50-15.00 call spread eight times for a net CREDIT of 0.15 per. The short sale of some December 15 calls for 0.45 yesterday morning clinched it, allowing us to capture premium in this series when the options were fat and juicy. Let’s put in a stink bid of 0.20 to cover the December 15s, good through Wednesday. It would be worth our while to get ’em in at that price if we can do so within the next few days. Our goal would then be to re-short them on rally. _______ UPDATE: We weren’t able to cover the short December 15 calls, since they never traded below 0.35. However, with the stock pushing toward $13 our position is looking better than ever. We have a chance to make as much as $2120 with SLW trading $15 or higher at expiration, but even if SLW plummets we’ll still make at least $120.
I usually ignore hot tips, but a pen-pal of mine, Phil C., sent me a breathless note predicting that the Dow would rally 100-150 points this morning, forming a top from which it will collapse when traders return after Labor Day. Putting aside the details, this sounds so absolutely right to me that I’m inclined to speculate modestly. Mr Market loves to spring dirty, nasty surprises whenever possible, and what could be nastier — or more surprising — than a tsunami to greet us as we return from summer’s final fling? To get short, we can use the midpoint resistance at 95.07 shown in the chart, buying two September 93 puts (DAVUO) if and when the Diamonds get there. _______ UPDATE (11:52 a.m.): Stocks are only modestly higher today after an other-then-depressing unemployment report, so a short-squeeze to the levels where we’d wanted to get short seems unlikely. We’ll do nothing officially, but personally I’m going to take a couple of puts home with me over the weekend. My hunch is that the best prices of the day will obtain near the close. (Note: I bought some September 93 puts — DAVUO — for 0.86.)
The futures pushed slightly above a 16.265 pivot that had served as a short-term, minimum upside objective. The overshoot hints of further upside progress, presumably to the next Hidden Pivot resistance worth noting, 16.640.
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After pushing decisively past it, the stock appears to be consolidating at the 24.94 midpoint pivot of a bullish pattern projecting to 30.65. That would represent a 23% rally from current levels, implying traders should position from the long side. You can do so most aggressively if using ‘camouflage’, and the best place to find it at the moment will be on the 10-minute chart, which contains several ‘external’ peaks that can be used for leverage. _______ UPDATE (7:48 p.m. EDT): Some chat-roomers evidently took my bullishness on the stock as a go-ahead to buy call options. Keep in mind that I suggest using options for directional plays only if one is fairly confident the position will go into-the-black within perhaps 15-30 minutes. Practically speaking, this means buying puts or calls only at Hidden Pivot swing points. Going out to May expiration is okay if you plan to calendar-spread calls you’ve bought, but for all intents and purposes, going out further in time with options is only stacking the deck against yourself. For all buyers of options at all times, time works against you, and the further out in time you go, the greater your odds of losing. I will be tracking SLW closely in the days ahead, looking for an opportune spot to get long. If you’re interested, stay tuned to the chat room and to email notifications.
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We got a clear and decisive answer yesterday to the question that has been on every tiny, fevered brain up and down Wall Street: How long do we have to feign concern over the situation in Ukraine? The Dow finished up 228 points after being up as much as 250 points intraday, proving yet again that the stock market, fed by a limitless stream of easy money, has absolutely no connection to the world of events. Unfortunately, traders had little opportunity to grab the rally by the tail, since it was effectively over on the opening bar (see inset). And by day’s end, it had left bears pinned to the ropes yet again, ready if unwilling to energize the next freakish, short-squeeze to who-knows-how-high.
Actually, we do know how high, since there’s a clear-as-day Hidden Pivot target at 16437 on the intraday charts, and another at 16607 if the first fails to contain the opening-bell stampede. A move exceeding the lower number by as little as 4 points should be regarded as the go-ahead for achieving the next. Traders looking to get long using the ‘camouflage’ technique should focus on the 10-minute chart, since it was bullishly impulsive at Tuesday’s close. You should also view a retracement to 16339 as a possible buying opportunity, since that is the midpoint Hidden Pivot of the rally pattern yielding the target at 16607. Either of the two targets is shortable using the Diamonds, and the second can be shorted with a micro-tight stop-loss instead of camouflage. If you’re lucky enough to have been long on the way up, I’d suggest using a portion of your gains to short 16607 more aggressively. For a simple strategy using put options, check out today’s tout for the Diamonds.
This popular gold mining vehicle is taking its sweet old time consolidating, but when it develops sufficient thrust for takeoff, expect the move to reach the 50.71 Hidden Pivot target shown in the chart. That would represent a move of nearly 20% from these levels, but if it unfolds with the speed of the initial leg we could be there by April. The rally should be considered under way when GDXJ has decisively exceeded the 45.55 midpoint (i.e., by perhaps 20 cents) or closed for two consecutive days above it. Traders looking to ‘camo’ their way aboard with minimal risk should do their hunting on the 15-minute chart, where there are some decent ‘external’ peaks to be found in price action over the last two weeks.
Facebook has just paid a whopping $18 billion for an instant-messaging application that evidently has caught on with the kids. The company, WhatsApp, has 55 employees, and its two founders are now billionaires. It would hardly surprise if their clerk-typist and janitor have become multimillionaires. No one knows what kind of revenues the company has been generating because that’s a secret. But they do not use an advertising model, and subscriptions are free for the first year, rising to $1 a year thereafter. Zuckerberg paid about $40 per for each of WhatsApp’s 450 million users — supposedly the going rate. Frankly, we view these valuations as absurd. However, such concerns didn’t stop Wall Street’s OPM stewards from goosing FB sharply higher yesterday, pushing the stock well past a 67.43 Hidden Pivot target that we might have expected to contain FB for more than a few days. Keep the number 75.82 in mind, because Hidden Pivot analysis says that’s where this gas-bag will bump up against something solid. We’ll be looking to short aggressively up there, so stay tuned to the chat room and to the tout updates if you’re interested. _______ UPDATE (February 28, 2:50 a.m. EST): Yesterday’s detour south could take the stock down to 67.66 if the intraday low, 68.85, gets taken out. The target can be bottom-fished with a limit bid and a stop-loss as tight as 5 cents. ______ UPDATE: Friday’s 67.38 low overshot my target by 28 cents, stopping out any bidders who played it by-the-book. The overshoot of the target suggests that still-lower prices may impend. _______ UPDATE (March 10, 11:33 p.m.): Once past a midpoint resistance at 72.20, expect this stock to cruise to at least 74.93 (daily chart, A=66.51 on 3/3), the next Hidden Pivot resistance of significance.
The drumbeat of dollar bears has grown louder in recent months, with some of my colleagues suggesting that a collapse is imminent. Technically speaking, I’m just not seeing it. The Dollar Index has in fact been one of the world’s most boring trades for the last three years and is currently thrashing around near 80, about where it was ten years ago. In the intervening decade, although there have been some big swings, it has crossed trendlessly up and down through 80, the approximate midpoint of a 20-point range, no fewer than 15 times. If I had to bet which direction the next, presumably insignificant, move will be, I’d give 6-5 odds that it will be up.
Don’t’ get me wrong: I completely agree with those who tirelessly assert that the dollar is crap. Even so, it is the crap the world chooses to hoard against the threat of financial collapse; it is the crap that financiers bet on whenever some geopolitical crisis causes a global tremor; and it is the crap that the paper shufflers bet with — to the tune of a quadrillion dollars — whenever they want to make big money with relatively little work. These factors greatly outweigh any reservations they may have about taking dollars in exchange for all of the things that Americans consume. Crap or not, the dollar will remain buoyant until the day the rest of the world realizes the U.S. economy is kaput and that the confidence that supports the financial shell-game was egregiously misplaced. This will happen with the swift, destructive force of a nuclear blast, by the way, rather than via a comfortable and more or less predictable process of depletion. _______ UPDATE (March 2, 9:56 p.m. EST): The dollar has bounced precisely from the 79.68 target shown (see inset), but if the support gets taken out within the next couple of days it would be evidence of further weakness to come.
This Just In... for Friday
The following questions about my option strategies came up in the forum, but I am republishing them here because they may be of interest to a wider audience:
What is the advantage of going long one call, and then locking in a given spread via shorting another call, versus “locking-in” the spread by going long on puts instead?
My answer below is more generalized, but to address your specific point, we should prefer to “lock in” a profit by shorting a wasting asset rather than buying one ourselves. For most option traders most of the time, shorting calls is MUCH more profitable than buying puts. Indeed, in the several decades I have been trading options, I cannot recall a instance when put buyers were happy for more than three consecutive days. Even those who owned puts ahead of the 1987 crash had just two days of sheer bliss to get rid of them.
Is it that in the latter scenario, one is long twice, and can thus get screwed twice by the pros? I always thought the latter scenario would be a good one in cases of low implied volatility, where the loss on one is mitigated, and the gain in the other is increased when implied volatility rises during larger underlying moves. (That may just be retail-customer theory, which the pros have long beaten. But what do I know? I’m still waiting for someone to start offering straight options on the VIX. Thanks!
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The spreads I prefer are intended to provide a highly leveraged shot at big profits, but without the usual, horrendous time decay. This tactic is especially useful if we expect a stock to rise (or fall) over a period of several months. We also seek to take advantage of fleeting spikes that goose option volatilities to the moon. If, for instance, SLW opens on a gap this morning (it did), we may have a chance to short Dec 15 calls when they are hugely overvalued — sell them, perhaps, for even more than the 0.45 we’d intended. (They topped at 0.50 before receding with the tide.). And, of course, we do so with the expectation that Silver Wheaton will be strong in the coming months, but not so strong that the December 15 calls will go in-the-money. We may ultimately decide to exercise our December 12.50s, a step in building a long-term position. RA
Were you aware that the Bureau of Labor calculates unemployment in various and sundry ways that are not shared with the press? Neither were we — until we heard about ‘U-6,” which reckoned U.S. joblessness at 14.8 percent back in February. We would assume it’s much higher now, but unfortunately February was the last month given. Incidentally, if 1933’s rate of 24.7 percent had been calculated using today’s dubious metrics, it supposedly would have been lower by at least five to ten percentage points. Click here for the link.
Hidden Pivot Webinar & Tutorials
The Hidden Pivot Webinar is two-day event is designed to teach you the risk-averse trading strategies Rick has taken to his seminars around the world. Once you have learned his proprietary secrets, you will approach trading and investing with enough confidence to make your own decisions without having to rely on the advice of others. The next Webinar will take place on April 2-3, 2013. For more information, or to register, click here.
With $1000 Looming, Gold Fever Is Back
by Rick Ackerman on September 4, 2009 2:15 am GMT · 5 comments
We’re no fans of head-and-shoulder formations, since they are everywhere the amateur chartist might want to find them. But there is something to be said for the bullish reverse head-and-shoulders pattern that gold futures have been tracing out for the last year-and-a-half. The pattern is shown in the chart below, and it is predicting that December Gold, which settled yesterday at 997.70, its highest close since February, is about to run up to $1060. Trouble is, just about everyone we know thinks gold is about to pop to 1060, give or » Read the full article