We hold eight Dec 13 280 calls with a cost basis of 0.28. We bought them anticipating a rally to a 283.97 Hidden Pivot target that has been solidly in play since March, when the stock was trading $90 lower. The target has served not only to guide us in trading AAPL, but to keep us properly bullish as the broad averages seemingly defied both common sense and gravity. When we bought the calls our goal was to cover their cost 100% by rolling the 280 calendar spread on three successive Fridays. With the stock strongly on the rise, I'll suggest an alternative strategy to simplify things: Offer four Dec 6 280 calls short for 0.55, good through Wednesday. If the order fills we'll own the Dec 13 280 calls effectively for nothing. It would also give us a backspread position that would make us longer as AAPL rises. ______ UPDATE (Nov 26, 7:55 p.m.): I just noticed that AAPL triggered an rABC short last week. We're a little late to the party, but I'd hate to let an opportunity go to waste. Accordingly, I'll recommend bidding 0.31, day order, for two Dec 6 250 puts. This is a speculative bet and will not affect our call strategy. _______ UPDATE (Nov 30): We hold two Dec 6 250 puts for 0.31 and eight Dec 13 280 calls for 0.28. For now, offer four of the calls to close for 0.48, good through Tuesday. Check for updates before and after Monday's opening in case AAPL moves significantly. _______ UPDATE (Dec 2, 9:34 p.m.): Our strangle position is inadvertent, but even so, I'd be surprised if this stock fails to put either end of it in play. For now, do nothing. _______ UPDATE (Dec 3, 8:52 a.m.): Offer the puts to close
We hold two synthetic puts -- short stock, long Nov 29 280 calls -- with a built-in profit of $260 no matter what. Although we harbored no illusions about nailing the Mother of All Tops when we initially purchased eight put options as DIA crested last week pennies from an important rally target at 280.88, it's surprising how quickly stocks have recouped the moderate selloff that followed. The Hidden Pivot resistance that repelled bulls has yet to be exceeded, but this seems all but certain to happen soon. Notice how this morning's opening bar gapped through the 279.88 midpoint pivot of a pattern projecting to 284.37. This implies the rally will not stop until it hits that number. Short there, adding to the existing position only if you've caught a piece of the rally. One way to do this would be by way of a 'mechanical' buy. The ideal set-up would come on a pullback to the green line, stop 275.38, provided DIA has gone no higher than Monday's 280.81 peak. _______ UPDATE (Nov 30): Cover the short stock on Monday's opening, since the position has outlived its usefulness with the Dow Industrials frolicking above a 28,046 target.The imputed profit with DIA at 280.95 would be around $250. _______ UPDATE (Dec 2, 10:00 a.m.): DIA head-faked on the opening before dropping to a so-far low of 280.46. A small profit was the worst you could have done, but there have been no reports in the chat room that would allow me to estimate the amount.
A target at 280.88 allowed us to get short four cents off what could prove to be an important top. An initial position of eight Nov 22 280 puts has yielded a partial profit that effectively reduced the cost basis for the two puts that remained to a $200 CREDIT. Because the options expired on Friday, I suggested rolling the position forward by buying two Nov 29 280 calls while letting the two puts we were long turn into short stock. This effectively gave us two synthetic put options that will provide further gains if DIA continues to fall while limiting our losses if the Dow recovers next week. The $140 we paid for the calls is more than offset by the $400 in theoretical profits booked on the sale of six puts from the original position.
Bulls failed to get anything going on Friday, but so did bears. My hunch is that the latter were too timid to assert themselves as the week ended, but that they will be more aggressive come Monday. Even so, the holiday-shortened week could impede the momentum of any selloff that might develop, so permabears shouldn't get their hopes too high. Alternatively, if the December contract pushes above p=3115.38 in the chart shown, assume it's on its way to 3140.0o. Pivoteers should be alert to the possible buying opportunity that would come on a pullback to the green line in the early going, stop 3090.50, from a peak somewhere in the range 3120.50 - 3123.00. _______ UPDATE (Nov 25, 7:45 p.m. EST): A short-covering panic on the opening gapped the futures past the 3115.38 resistance noted above, all but guaranteeing more upside to the 3140.00 target. It looks too clear and compelling to be a pushover, but bears had better dive for cover if it is easily exceeded. Short there calmly with a 1.25-point stop-loss, but only if you've caught at least six points of the rally. (It wasn't possible to get long 'mechanically' as I'd suggested, by the way, because the futures did not pull back even to the red line, let alone to the green one where most mechanical trades originate.)
A major rally target at 283.97 has served us well as a bullish lodestone, but it looks as though AAPL is about to take a detour. The target will remain valid as long as the stock doesn't plunge below 142.00 (!), but more immediately sellers appear eager to push AAPL to the 257.23 target shown. We should plan to leverage a tradeable bounce from that Hidden Pivot, but as always, if so compelling a support is easily breached, that would spell more trouble for bulls. Because AAPL is the key bellwether for the bull market, this is an important concern. We need to get this one right, and that means, for starters, no longer insisting that the stock absolutely, positively, must achieve 283.97 before the fat lady sings. If buyers had popped it past p=212.99 on the first try, things would be different. But they didn't, and even a second try on August 8 succumbed to gravity, requiring a running start for a third attempt that finally succeeded. This hesitation should put us on our guard, ready to accept any technical evidence that suggests the record high at 268.00 recorded last week will stand for a long time.
I've zeroed in on a smaller corrective pattern to produce two potential buying levels above the 25.22 target we'd been using for this purpose. The new pattern has two things going for it that the old one did not: 1) a point 'B' low that exceeded an external low to the left of it. (I've circled the low to show this); and, 2) a fetching one-off point 'A'. Together these factors make p=26.47 an enticing place to try to get long. Do so by bidding 26.49 for 400 shares, stop 26.36. I am not suggesting call options at this time because the holiday-shortened week will take a toll on time premium ahead of Friday's expiration. Stay tuned to the chat room just the same, since I may change my mind if the options look like bargains. ______ UPDATE (Nov 25, 2:05 p.m. EST): The trade was stopped out on the so-far low tick of the day for a $52 loss. Second try, good till canceled: Bid 25.47, stop 25.39. GDX could still turn from p2=25.96, shutting us out of the trade, but I've lost my appetite for bottom-fishing this brick unless the odds are very strongly on our side. _____ UPDATE (Nov 30): Cancel the bid, since GDX has been pretty squirrely lately. If we attempt to get long, it might be via an rABC set-up, so stay tuned to the chat room if you care.
The tracking position established on October 3 at $7,609 is still showing a substantial theoretical gain even though BRTI has plummeted $3142 since we got long on October 23. Within three days, we were able to take profits on half of the position on an explosive rally to $9,933. The original 'buy' signal was a 'mechanical' one, implying there is still a stop-loss in effect at $3,133, just beneath the pattern's point C low. Expect the weakness to continue down to the $6,299 target shown -- a $947 fall from these levels. If and when that happens, we'll attempt to augment our position by buying early on in the expected reversal from $6,299. _______ UPDATE (Dec 4): Today's gratuitous, $1300 Whoopee Cushion bounce went unnoticed by the tracking position we've held for the last six weeks from $7609. The cost basis of the position, effectively, is around $5500, since a wack-o rally two days after the position was entered allowed exit on half for as much as $9333.
Wall Street firms often "talk their book" in order to front-run their own customers. You can bet that if a big-time investment house is out on the tape with a bullish forecast for a loser like, say, Uber, they mean to unload the stock, not buy it. An upbeat report from an influential analyst will typically cause shares to rise, at least for a short while, giving the firm an opportunity to dump its position into a flurry of buying by the usual lamb chops. There are other ways to rig the game that can be even more lucrative for the perps. One of them involves planting "news" in order to extract riskless profits from the option markets. In one example, 'conversions' and 'reversals' can be used to generate very substantial interest income with someone else's money. Employing reversals, a firm would short, say, 100,000 shares of AMZN for $1,750 apiece while simultaneously shorting a thousand puts at the 1750 strike and buying a thousand 1750 calls. No matter how much the stock moves, the relationship between the three sides of this position will remain fixed. The point of doing it in the first place is that the seller can park the $175 million in proceeds from the short sale in Treasury paper. How the Sting Works There is a temptation for unscrupulous firms to rig the price of these already-riskless trades even more heavily in their favor by deftly manipulating the news. For instance, a well-timed headline accompanied by a photo of a Tesla in flames could reliably be expected to push the price of TSLA stock and call options significantly lower for a short period. This would give the hedge fund an opportunity to leg into a truckload of reverse conversions at an unbeatable price by following these
Gold's recent low at 1446.20 overshot the 1447.50 target shown by just $1.30, which is neither bullish nor bearish. However, the bounce would need to exceed 1489.20 -- or better yet, 1495.90 -- to hint that the correction that has obtained since early September is over. These numbers correspond to external peaks recorded on the hourly chart on, respectively, November 7 and November 6. Please note that they are not visible on the chart accompanying this tout, but they are viable nonetheless. Recent price action has been dispiriting, marked by the December contract's failure to reach an 'easy' rally target at 1485.90 (60-minute, a= 1446.20 on 11/12). This was particularly disappointing because the A-B impulse leg of the pattern was strong. The target will remain in play nevertheless until such time as C=1456.60 is breached. That would put a downside target at 1429.50 in play (A=1495.90 on 11/6).
We covered a lot of ground during this session, some of it fun stuff that was not directly related to trading. For the first time, students were encouraged to come up with their own trade set-ups and contribute them to the group. This they did, diligently, providing mostly rABC trades that showed promise for generating profits right then and there, or perhaps later. This has become the driving purpose of the Wednesday sessions, since the trading tactics themselves are by now well known to the core group of attendees.
