Monday, June 9, 2014

The AAPL butterfly spreads we held were gaining steadily in value, but I suggested bailing out of them for a small gain nonetheless because the 7-for-1 stock split was going to leave us with June options bearing weird strikes and a possible liquidity problem. The split has also cast into doubt our original 660.26 rally target, since the post-split charts contain adjusted ABC high and low coordinates that are not natural highs and lows. Our target equates to 94.32, but as you can see, the split-adjusted chart suggests the stock is on its way to 97.12. That target is playable, but not with the same leverage we got with the butterfly spreads.  For now, let's see how AAPL moves before we take another plunge.

The 1948.25 rally target proffered here Friday marked the intraday high until the final minutes of the day.  It is now shortly after midnight Monday, and although the futures have opened higher, extending their latest move into record territory, the new high is merely marginal.  The so-far top is 1950.00, but that's probably enough of an overshoot for us to infer that an alternative target at 1954.25 also given Friday is in play.  Because this would closely coincide with a potentially important DIA target (see tout for the exact number), a tightly stopped short is recommended in either vehicle at its respective target. If this vehicle should push past 1954.25 by as little as 2.00 points, however, I'd infer that the third and last of the targets disseminated on Friday, 1970.50 (see inset), is likely to be achieved.  If you're long when it gets there, use some of the profits thereof to cushion a generous stop-loss.  (Note: The equivalent target for the September contract is 1960.50.)

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It may be time to bet on volatility. This vehicle's steady decline over the last year has crushed buyers of puts and calls alike.   However, the chart suggests the trend may be about to reverse. The bear-market target at 25.43, a Hidden Pivot, sits about 16% below current levels, and there are two ways we can attempt to make money on it.  First, to play the remaining downside, I'll suggest buying calendar puts spreads centered on the $25 strike: Buy two dozen July 25 weekly puts and short a like number of June 13 weekly puts 1:1 for an 0.08 debit. We'll make this a day order so that I can determine whether the options are liquid enough to get us filled on a spread order. If not, we may still be able to leg it on, buying the July puts first when VXX is rallying.  Our second trade would entail bottom-fishing if and when the 25.43 target is reached. For now, however, we'll focus on the bearish bet. _______ UPDATE (June 12, 6:45 p.m.):  VXX has taken a robust leap from a 29.90 low that lies well above my target. Ordinarily I would assume it to be a dead-cat bounce. But given the increasing loud drumbeat of scary news from the Middle East, this bounce could get legs. In any event, VXX has generated a 'buy' signal on the hourly chart. To get onboard, traders should use the point 'A' low  at 30.99 recorded yesterday. As of yet, there has been no B-C pullback. _______ UPDATE (June 19, 9:37 a.m. EDT): And a dead-cat bounce it was. VXX has resumed the downtrend with yesterday's hellacious dive. The target remains good-as-ever. We should remain open to the possibility that the projected low will be achieved simultaneous with a major top