Wednesday, November 3, 2010

After The Election

– Posted in: Tutorials

The markets were severely constipated -- not only because it was the morning after a big, nastyy election, but because traders were waiting for yet another m-o-m-e-n-t-o-u-s announcement from Bernanke concerning quantitative easing to come. We pored over charts for the E–Mini S&Ps, gold and the dollar nonetheless, and we even tested the water with a real-time bottom-fishing trade in the S&P futures. (I won’t spoil the ending for you.) The day was interesting from an analytical standpoint because the E-Mini S&Ps had reached a very crucial threshold at 1196.50 the night before – an event that we deconstructed with due diligence.

Oh-so-coy….

– Posted in: Rick's Picks

So far on this election night, the E-Mini S&Ps have tiptoed oh-so-coyly to the exact, 1196.50 threshold above which I'd said shorts would be seriously at risk.  I doubt the resistance will hold, but who knows?

AAPL – Apple Computer (Last:)

– Posted in: Current Touts Free Rick's Picks

For now, stick with the two November 300-310-320 butterfly spreads we hold for a 0.20 debit apiece. The spread closed at 2.35, yielding a paper profit of $430 on our position, but I think we can do better.  If it's possible to leg out of it for much better prices, I'll signal it in the chat room and via an update to this tout.  I've included a snapshot of an option calculator that will allow you to determine the value of our butterfly as of Friday, November 12, with the stock trading anywhere between 304 and 318.  At $310, for instance, the butterfly would be fairly valued at 3.53 (-2 x $425 to cover the short 310s, and 12.03 realized from the sale of the 300 and 310). _______ UPDATE (12:07 p.m. ET):  Cover the spread, which is an easy sale right now for around $7.  With the stock trading 311.86, the November 300 call that we are long can be exited for 12.20, and the two November 310 calls we are short, covered for around 2.60 apiece. I have also posted this recommendation in the chat room.

DIA – Diamonds (Last:112.58)

– Posted in: Current Touts Free Rick's Picks

Despite yesterday's swoon, the Dow still looked bound for at least 11367.  The equivalent for the Mini-Dow is 11327, as noted earlier, and for the Diamonds 113.68.   As before, we'll try to short DIA by buying two December 112 puts when the target is reached.  I estimate that they'll be selling for about 2.38, but the best way to buy these options for a fair price is to simply monitor the spread for them as DIA closely approaches the target. _______ UPDATE (10:01 a.m. EDT): The exact high so far of today's QEII short squeeze is...113.68. This has allowed us to buy two Dec 112 puts for 1.96. (Option volatility got CRUSHED by the rally.) We'll risk 0.16 apiece on them, stopping ourselves out if they trade down to 1.80. I estimate that DIA would need to be trading for around 113.95 today to trigger our stop. _______ FURTHER UPDATE:  We were stopped out at 1.80 for a $32 trading loss plus commissions.  Although the Hidden Pivot resistance contained the gap-up rally that began the day, it was no match for the second-wind onslaught now in progress.

ESZ10 – E-Mini S&P (Last:1194.50)

– Posted in: Current Touts Free Rick's Picks

Shortly after 8 p.m. Eastern, election-night silliness has pushed the future as high as...1196.50, the precise number above which I'd implied it would be open hunting-season on bears. The hourly chart suggests the rally will hit a minimum 1205.25, which would roughly equal the 175-point opening I've projected for the Dow Industrials.  I'll recommend shorting the target with a stop-loss at 1206.25, but be particularly careful if the trade triggers in the dead of night.

Wall Street, Too, a Sap for ‘Hope and Change’

– Posted in: Commentary for the Week of March 8 Free

[So much for going out on a limb.  Shortly before 1 a.m. Eastern, the rally in index futures has reversed and the market is now flat.  It's possible this reflects a similar flattening of expectations arising from the election.  Although the Republicans made spectacular gains in the House, their failure to capture the Senate is likely to impose gridlock on Capitol Hill for the remainder of Mr. Obama's term.  While this is arguably cause for true celebration, it seems unlikely to generate the burst of exuberance on Wall Street that we had expected in predicting a 175-point rally. RA] The polls don’t close for another three hours, but we’ll go out on a limb with a prediction that the Dow will rally at least 175 points when stocks open on Wednesday morning. The exuberant reaction will be a variation on Barack Obama’s Hope and Change-inspired landslide in the 2008 election. Now as then, revelers will be so worked up about the very prospect of change, any kind of change, that they won’t much care about the details.  But they’ll care about them soon enough, and that’s why we’re also predicting a Thursday morning hangover; for at the end of the day, it takes just as many Republicans and Tea Partiers to screw in a light bulb as it does Democrats. Mind you, even though there isn’t ultimately much difference between the two major parties as far as how they govern, there are differences enough that we’ll be rooting, sight unseen, for anybody-but-the-Democrat in virtually all Congressional races.  Running as a Socialist Worker? No Problem-o.  Symbionese Liberation Army?  You can count on my vote. La Raza? Where can I find your name on the ballot?  Tupamaros? Sure, but please don’t forget me when the repeal of Obamacare comes up for a vote.