DIA

We took a stand against Friday's rally, speculating on a downturn with the purchase of 12 March 7 150 puts.  Although subscribers reported buying them for as little as 0.59, I will use the worst price reported, 0.64, as is my custom. A 0.49 stop-loss is suggested, meaning you should exit the position on a sell-stop if the puts trade down to 0.49.  Please note that I would be inclined to try again if DIA continues to move higher, as appeared likely when last week ended. In tracking the theoretical gain or loss of this position, I will impute continuing results to a paper profit of $1920 realized from an earlier short in this vehicle. It was established in mid-January by first buying 12 Feb 7 158 puts for an average 0.34, then shorting 12 Feb 7 155 puts against them for the same price when DIA was falling. I advised taking profits on eight of those contracts at two different intervals -- a tactic that would have locked in a gain of at least $1280 no matter what DIA did subsequently.  However, holding onto four contracts until Friday was a riskier gamble.  Although the puts could have produced an additional gain of $1200 had the DJIA rallied less than 200 points after bottoming Wednesday morning, the blue chip average in fact rallied 450 points. Even so, subscribers could have added $640 to the gain on the overall position if they sold the spreads at the lower end of the range I'd flagged the night before.  This was easily possible when the Dow dropped nearly 100 points Friday after squeezing the bejeezus out of bears during the opening minutes of the session. The technical picture suggests short-covering could drive this gas-bag as high as 159.10 as the new week begins.

It was probably too much to ask that shorts remain cool and calm this week, even as the business pages reflected growing alarm about the possible full-blown return of a global Great Recession. Yesterday, bears were a study in self-mutilation as they battled their own demons. Some merely covered short positions on the explosive opening bars, but others undoubtedly doubled down with each new upthrust. The latter ended the day badly on the ropes, with stocks barely correcting from their intraday highs. Under the circumstances, I'll recommend exiting the four put spreads that remain from 12 bought when the broad averages were topping in mid-January. Gains from partial profit-taking reported by subscribers so far total $1280, but I have been shooting for $2000 with the closure of the last four spreads.  They settled at 1.83 yesterday, but I would suggest offering them for 2.00 when stocks open Friday morning (with a qualifier noted below).  If they go unsold at that price, offer them down to as low as 1.60, starting at 1.90 and working your way lower during the first 30 minutes of the session. You should also check here for updates, since I may suggest a change in tactics if DIA moves sharply one way or the other. And be sure to take note, before the opening, of any gains or losses overnight in the E-Mini S&P, since the DIA put spreads would become an easy sale for $2 or more if the futures are down more than five or six points at the bell. _______ UPDATE (12:07 p.m. EST): I'm going to assume an exit price of 1.60 for the Feb 155-158 put spread. It was do-able for more than that an hour after the opening-bar short-squeeze, when DIA fell to a so-far intraday low of 156.05. Imputing

The February 158 put options for which subscribers paid 34 cents when stocks were topping out in January came home to roost yesterday, trading as high as 4.50. Subscribers would have owned them as part of a spread that included an equal number of Feb 155 puts shorted for 34 cents when DIA swooned briefly in mid-January. Since both sides of the position were done for the same price, the spread carried no risk of loss and a potential gain of as much as $3600 (for 12 spreads, the number recommended). After DIA began to fall sharply on January 22, I suggested closing out four of the spreads for 1.20; then, a few days later, closing out four more for 2.00.  Anyone who followed my directions exactly would have realized a profit of $1280 so far. The orders were to have been treated as spread orders, meaning they required no tending. One could have simply parked 1.20 and 2.00 limit orders, respectively, with one's broker. For the record, I never consider my recommendations as having produced an actual gain or loss unless subscribers report having made or lost real money themselves. At present, four $3 vertical bear spreads remain from the original position, and they would add $1200 more in profits to the $1280 total if exited with DIA trading below 155 come Friday's expiration. I'll likely recommend holding them until then, but buying some out-of-the-money calls against them in the meantime if DIA falls to a Hidden Pivot target where a strong bounce would appear likely according to my proprietary forecasting system.  The first place we might have such an opportunity is with DIA at or very near 151.63, a Hidden Pivot target that implies the DJIA cash index is about to fall at least 180 more points before

Subscribers who followed my simple instructions yesterday were able to leg into the remainder of a bearish put spread that we initiated last week. Although we'd been trying to buy DIA puts since New Year's Eve, when the E-Mini S&Ps peaked a single tick from a potentially very important Hidden Pivot target at 1846.75, the options stayed just out of reach.  Then, on January 17, with stocks ascending, some Feb 7 158 puts finally came our way for around 0.34. Thereafter, it remained only for subscribers to short puts of a lower strike against them for 0.34 or better. This was easily do-able yesterday, when the Dow Industrials were down 240 points at their intraday low.  The selloff allowed us to short some Feb 7 155 puts for 0.34, giving us a virtually riskless $3 vertical bear spread (x 12) that can produce a maximum gain of $3600 if the broad averages continue to fall over the next two weeks. For now, though, you can sit back and relax, since our bearish bet effectively cost us nothing. As I am wont to remind you, zero zilch nada is how we should value puts when the stock market has been in a bull market that has been chugging along for nearly five years. Click here for two weeks' free access to the Rick's Picks chat room, where tradable ideas are served piping hot in real time. _______ UPDATE (January 27, 12:01 p.m. EST): Offer four of the spreads to close for 1.20, good till canceled. ______ UPDATE (January 29, 9:15 p.m.):  The spread was an easy exit today for 1.40 when the Dow was down 220 points at its lows. Imputing the theoretical gain of $480 to the eight spreads we still hold gives us an adjusted cost basis of minus

Bulls look to be recouping their strength for a run at the New Year's high. We tried to buy puts at the exact time the high was achieved, but they stayed just beyond our grasp. Now, with DIA within easy distance of the original target, it is tempting to think it will soon give way, as have all other highs achieved since 2009.  Equally tempting, however, is the prospect of taking long odds on a plunge that would undoubtedly catch most traders and investors by surprise. Accordingly, I'll recommend buying four Feb 7 158 puts for 0.36, and another eight for 0.32, day order. You should stop yourself out if the options trade down to 0.18.  Keep in mind that out-of-the-money puts have been one of the worst gambles you could have taken in the last five years, and that this play is just that -- a gamble based on a gut hunch. If the order fills and survives for at least a few hours, check back here or in the chat room for further advice, since we'll want to spread off our risk and make the puts we own 'free' at the first opportunity. _______ UPDATE (9:51 a.m. EST):  The puts opened for 0.36 and were briefly offered at that price, so I am assuming a fill on four contracts. For your psychological well-being, and to help you cope with the next unfathomably stupid, monster rally, I'd suggest setting the stop-loss advised above and kissing your money good-bye.  Be comforted as well by the fact that we are only risking $72 theoretical on this wild speculation. _______ UPDATE (11:10 a.m.): And now we are filled on the puts at the lower price as well. I intend that the 0.18 stop-loss be able to weather a further rally to the

The rollover of prices since year's end is not unexpected, since it correlates with a peak in the E-Mini S&Ps that lay a just one tick from a Hidden Pivot target that had been more than a year in coming. I'd said here earlier that even a robust bull market such as we've seen in recent months would take at least 5-7 days to gather sufficient thrust for a run at the high. My hunch, however, is that we are in for a more extended correction and that it will come down to at least the 160.53 Hidden Pivot midpoint (red line) shown in the inset before stocks turn higher. That implies 350 points of downside, so I'm going to suggest a strategy that for me at least is wildly speculative: Buy 12 January (18) weekly 160 puts for 0.13 or less. Do not pay up, and do not do this trade in size.  Keep in mind that close to 99% of the out-of-the-money puts that have been bought over the course of this bull market have expired worthless. (Okay, I invented that statistic, but you get the idea.) _______ UPDATE (8:55 a.m. EST): As long as DaBoyz are about to short-squeeze stocks higher on today's fraudulent unemployment news, there's no reason to bid aggressively for puts. Instead of trying to buy the 160-strike (Jan 18)puts for 0.13 or less, let's lowball the Jan 162 puts with a 0.22 bid for eight of them.  Check in the chat room later, since I may suggest raising the bid if this morning's little hoax attempt fades quickly. _______ UPDATE (January 12, 10:12 p.m.): The puts traded down to an intraday low exactly at our price, 0.22, but because no subscribers reported buying them we'll keep trying. Stay tuned to the chat room

The Dow opened a hundred points higher yesterday but still managed to look like hell.  In the chat room early in the session, I flagged a potential bull trade in this vehicle but had second thoughts an hour later and canceled it. There really was nothing to trade, since the day was effectively over, at least for purposes of making money, on the opening bar. Stocks pulled back after the initial, fleeting short-squeeze, but it soon became apparent that bulls were incapable of mustering a follow-through. If I sound bearish, that is not the case.  Yes, it's a matter of record that I think the global economy is on a path to Armageddon.  But because the stock market has almost no connection to the real world, I have no problem telling you that I see almost no possibility that the Diamonds won't reach the ambitious, 175.89 rally target shown. That would equate to an 1100-point rally in the Dow itself -- and please note that I would be inclined to ease out of any long positions if and when the target is closely approached.  I would also short that number aggressively -- but with a tight stop-loss, since there can never be any guarantees that we are catching The Top, just 'a' top. Traders eager to hitch a ride on the January Express should view a pullback to the red line (160.53, a midpoint Hidden Pivot) as a fat opportunity. If you're looking for more precise entry instructions, stay close to the chat room (or click here for a free trial subscription that will get you into the room).

Bears appear to be struggling for traction, having failed to achieve either of two successive 'p' midpoints pivots generated on Friday by some half-hearted downward lunges. Let's wait and see whether the downtrend develops some momentum as the new week --the New Year, actually -- gets under way. For Monday, though, you can still try bottom-fishing at the 163.40 target shown. You can be aggressive with respect to size, but your stop-loss needn't be any wider that 163.36 on a 163.41/0.42 bid.

I'm establishing a tracking position for 16 Jan 155 weekly puts dated Jan 24. Some subscribers evidently jumped the gun, paying a tad more for the puts than was necessary. Regardless, I'll use the worst fill reported, 0.30, for tracking purposes. Set a stop-loss at 0.15, meaning if the puts trade at that price you should exit the order on a sell-stop. If you react quickly, there may still be a 0.15 bid for you to hit, but you'll need to be paying close attention. This gambit is intended to leverage a 163.78 rally target (see inset) that was reached early in the session.  It has since been exceeded by a decisive 50 cents, implying that an 1841.00 rally target I'd given for the E-Mini S&Ps will be achieved.  I have lowered the stop-loss on our puts to 0.15 from an originally suggested 0.20 because I don't want to risk getting stopped out of them just as the S&Ps are making a potentially important top. _______ UPDATE (3:59 p.m. EST): Sell the DIA puts before the close. I think the odds of buying them back tomorrow for significantly less are good. If you are unable to do so, plan on doubling down tomorrow when the E-Mini S&Ps hit my 1841.00 target. _______ UPDATE (December 27, 12:27 a.m.):  Bid 0.21 for a dozen January 156 weekly puts (1/24 expiration) on the opening, contingent on DIA trading 164.75 or lower.  If DIA is above that price, lower the bid by 0.01 for every dime above it.  You can keep the bid open during the day if it goes unfilled early on, adjusting it up or down according to where the underlying stock is trading. Thus, if DIA is trading for 164.45, you can pay as much as 24 cents for the puts;