DIA

Yesterday's asphyxiating, range-bound slog, which baby-stepped the Diamonds to within 0.24 points of a 107.61 target, killed my appetite for the trade, but we'll do it anyway because the target itself remains valid.  Short there however you please, but I'd suggest stopping yourself out if the September 104 puts go into the red by 20 cents or more.  We'll also need to be alert to the possibility that yesterday's rally, close as it came to the target, may have been a final gasp of at least short-term importance.  We are currently long a bear put spread three times @ 0.76 — short three August 102 puts against six long August 98 puts.

A previously identified rally target at 107.61 remains the best short-term play I can foresee at the moment.  That implies more than a point of upside potential to consider -- and possibly to leverage -- before we attempt to get short. Traders should be ready for the opportunity, which would come on the hourly chart this morning with a pop to between the two peaks of the last two days -- respectively at 106.88 and 107.09 -- followed by a b-c pullback and a new thrust.  If this all occurs in the first 60 to 90 seconds of the session, the opportunity would become all the more attractive, but you'll need to be ready for it. (Note: We remain short the August 102/98 put three times in a 1:2 ratio @ 0.76 per, but we've written off this backspread for a $228 loss.)

The more eager we grow to short this airborne turd, the less obliging it becomes.  Look at the three-minute chart if you want to see price action that's bound and determined to make nonsense of any prediction or strategy we might hazard. Previously identified rally targets at 107.61 and 108.75 remain valid nonetheless, but I'm not going to pretend they're likely to blossom into opportunities today. Suit yourself, since this one will have to be catch-as-catch-can into week's end.  We remain short the August 102/98 put three times in a 1:2 ratio @ 0.76 per.

So far this week, the Diamonds have barely improved on the dubious gain they achieved when they gapped higher on Monday's opening bar. Still, we've got our fingers crossed, hoping for a finishing stroke to 107.61 by week's end.  That's where I've recommended buying four September 104 puts, using a 20-cent stop-loss on the put. If you buy the puts with the Diamonds trading at or very close to the target, your theoretical risk, commissions included, would not be much more than about $100. Please note that if the stop is hit, DIA should be presumed headed to at least 108.75, the Hidden Pivot target of a lesser pattern.  We'll want to try shorting there, again using the Sept 104 puts and a 20-cent stop-loss. We are currently long a bear put spread three times @ 0.76 -- short three August 102 puts against six long August 98 puts.

We're already short via a backspread we've written off, but the temptation to try again at 107.61, a Hidden Pivot target that comes from the hourly chart (A=96.61 on July 6), is irresistible.  Accordingly, I'll suggest buying four September 104 puts if and when the target is very closely approached. The best way to price the puts is to monitor the bid/asked spread for about 15 minutes as the rally closes on the target. You should stop yourself out of the position if the puts trade for $20 less than you paid for them.  The theoretical risk implied is about $100. including commissions.

We are short the August 102/August 98 put spread in a 1:2 ratio three times @ 0.76.  It's time to write off the likely trading loss of $228, even though we'll continue to carry the position toward expiration. In retrospect, the loss came from my having missed exiting some long puts on July 7. We had a profit of nearly $1000 in the position at one time and I should have suggested nailing some of it down. Indeed, there will never be a good excuse for not taking at least a partial profit when puts "come home" as they did for us, however briefly (which in the world of put options means three days, tops).

We added a short August 102 put to our position for 3.10, making us long six August 98 puts and short three August 102 puts for a net debit of 2.28.  On a delta basis, the position is nearly dead-neutral at current prices, but because it is a backspread, we'll automatically get longer if DIA rises and shorter if DIA falls. For now, no position adjustment is necessary, but you should check this tout (or the chat room) for intraday updates, since a violent move could bring us opportunity.

With bears struggling to hold stocks down yesterday, we temporarily neutralized our short position just before stocks took off, selling two August 102 puts for 3.70 against six August 98 puts already held for an average 2.13.  This is a "backspread" position, and it will automatically make us longer if DIA goes up and shorter if DIA goes down. The tradeoff is that time decay will work against us, and that the position is a loser at expiration if the underlying vehicle is sitting near 98.  We have plenty of time to adjust, though, and the adjustment that will work best implies selling into strength and buying into weakness. For now, however, do nothing further. Wait till you see how much fun this can be if the Diamonds should turn violent! _______ UPDATE (2:48 p.m. EDT):  Short one more August 102 put for 3.10 or better. They are currently 3.10 bid with DIA trading 101.68. The resulting backspread -- long six August 98 puts, short three August 102 puts -- leaves us net short the equivalent of 24 shares, but we will automatically become long if DIA moves up just 20 or so cents from here. Our average cost per ratio spread is 76 cents (3.50 average per each August 102 versus 2.13 x 2 cost for the August 98s). This position will have to be worked to overcome the disadvantage of time decay and the prospect of a worst-case loss if the options expire with DIA trading around 98. One way to do this would be to short August 94 puts if DIA falls sometime in the next few weeks.  That would turn our vertical ratio spread into a butterfly yielding a profit, or at least no loss, over a wide price range. If DIA simply goes up, up, up, then our

We hold two August 98 puts for 1.06 and four July 96 puts for 0.70.  Close out the July puts if DIA exceeds 97.68, since that's where the five-minute chart would turn ever-so-slightly menacing for bears.  Otherwise, we'll continue to hold for a possible relapse down to the 95.42 target given here earlier.  If a rally makes it to 99.06, I'll put out an advisory, since we'll want to lay in some more August 98 puts on any ostentatious show of "strength." _______ UPDATE (9:41 a.m. EDT):  The market looks like hell, unable to capitalize on the feeble short squeeze that had developed overnight. Still, not wanting to take chances owning soon-to-expire puts into even a wafting uptrend, we sold the Julys for 0.97. Imputing the profit thereof to our cost basis for the August 98 puts brings them down to 0.52 apiece. Incidentally, the Diamonds made a tradable top at 99.08 early in the session before pulling back 47 cents.  You'd have to have caught the short on your own, however, since I was unfortunately too busy putting out fires at the time to publish a bulletin. _______ FURTHER UPDATE (1:19 p.m. EDT): DIA has gotten second wind as of this moment and is presumably headed toward a top equivalent to the one at 1149.25 that I've projected for the E-Mini S&P.   Since DIA has exceeded any target I can project for it today, I'll suggest buying four more August 98 puts if and when the E-Mini S&Ps reach 1149.25. _______ FURTHER UPDATE (4:03 p.m.):  We bought four more puts as advised, for 2.65. This gives us an average price of 2.13 for the six now held. No further action is suggested at this time. _______ FURTHER UPDATE (1:13 p.m. EDT):  In the chat room, I've recommended shorting two August 102 puts for 3.70 against our position.