Opening up a bearish position yesterday morning not long after trading began, we caught a fine breeze that allowed us to short the Diamonds just pennies off their hysteria-driven, opening-hour high. Here’s the trading recommendation exactly as it went out to subscribers the night before:
“Buy four August 98 puts if DIA gets within 0.05 points of the next Hidden Pivot resistance above, 105.92. You should be prepared to buy four more August 98 puts later if the Diamonds get past 105.92, since that will imply they’re going to at least 106.73 before a top is in. We are going out to August because the remaining life of the July options will be shortened not only by their July 15 expiration date, but by a holiday weekend.”
As it happened, the Diamonds took a powerful leap at the bell, responding to ostensibly bullish news that China will allow its currency, the yuan, to rise. We were in luck to have bet against the crowd, since the rally ultimately went no farther than 105.96 – just four ticks above our target. That gave us a perfect opportunity to get short at the height of the short-squeeze, moments before DaBoyz » Read the full article
DIA – Diamonds (Last:104.45)
by Rick Ackerman on June 22, 2010 12:01 am GMT
After purchasing four DIA August 98 puts not long after the opening yesterday for 1.28 and taking profits on two of them later at 1.50, we still hold two with an adjusted cost basis of 1.06. We also have four July 96 puts acquired earlier for 0.70, and we’ll plan to spread off the premium risk thereof by selling other puts against them if stocks continue to fall. Yesterday’s collapse following an opening-bell head-fake was as refreshing as a summer dip in a lake, but we shouldn’t allow ourselves to be lulled, since the pullback so far has not gone “impulsive” on the hourly chart. Also, the upward flick in the final moments of the day suggests there are still a few shorts who are not exactly cool about letting their profits run. Please note that by taking a partial profit on the puts, we are now in good shape to weather a breakout to new highs (specifically, to a Hidden Pivot target at 107.73 given here earlier) without getting much underwater on our position.