DIA

Were bulls saved by the bell?  By my lights, the Diamonds were on their way down to at least 96.13, or possibly even 95.42, when yesterday's session ended.  If so and the lower number is approached, that would bring our short offer of four July 90 puts within range. Time decay has pushed down their value since I first suggested offering the puts for 1.40, however, and they would now be worth closer to 1.00 if the underlying vehicle hits 95.42 by week's end.  Accordingly, I'll suggest lowering the short offer to 0.95, with 0.10 of discretion. The important thing is to short them irrespective of their price if and when DIA gets near  95.42.  We continue to hold two August 98 puts for 1.06 and four July 96 puts for 0.70.  I've included a snapshot of the calculator I used to determine a fair value for the puts.  The 37.5 volatility comes from TradeStation. _______ UPDATE (Friday, July 2):  DIA fell to 96.17 today -- four ticks from the projected low -- setting up the obligatory pre-holiday bounce/waft.  Although there is zero buying interest other than very feeble short-covering, sellers still lack the inspiration and/or moxie to effect a washout.  The 95.42 target is still valid, but bears should be cautious about the rally threat because of the precise bounce that has occurred from our first target.

Our small put position is showing a theoretical gain of about $890 following yesterday's refreshing plunge in the broad averages. We hold two August 98 puts for 1.06 and four July 96 puts for 0.70; they closed, respectively, at 1.54 and 3.85.  We should be encouraged by the latter number, since the puts magically traded down to 3.85 after having been as high as 4.15 minutes earlier. What that means is that the thieving dirtbags who are short them -- professional market makers, like I used to be -- are struggling to hold them down.  They may have been "marked" at 3.85 for settlement purposes, but you can bet there weren't many for sale at that price and that the market makers would have jumped on any serious offers at 3.90 or even 3.95. They project to at least 5.00 right now (see chart), implying that sellers are not yet finished with the Diamonds/DJIA.

We hold two August 98 puts for 1.06 and four July 96 puts for 0.70.  Continue to offer four July 90 puts short for 1.40, good-till-canceled. The order is a longshot bet at the moment, but it could fill in a trice if a long squeeze develops before or immediately after the July 4 holiday. A dip below 101.29 in the early going this morning would be an encouraging sign.

A little greed is good here, since we don't want to sell our puts prematurely, just as the party as getting under way. We hold two August 98 puts for 1.06 and four July 96 puts for 0.70. The paper gain on the position at yesterday's closing prices amounts to a little more than $400. Continue to offer four July 90 puts short for 1.40, good-till-canceled. If you want to see how far DIA would have to fall to get us filled on the order, check out the accompanying chart.

We continue to hold two August 98 puts for 1.06 and four July 96 puts for 0.70.  DIA bottomed yesterday almost to-the-tick on the target I'd flagged in the chat room, but the weak close suggests that selling could gain momentum today. Let's be ready to leverage disaster with a "stink offer" of 1.40 for four July 90 puts, good-till-canceled. If this short is filled, we will have legged into a $6 vertical put spread with $530 of profit potential for each spread, a worst-case gain of $350 for the entire position, and no possibility of loss. For your information, the Diamonds would need to fall to around 95.79 this week, equivalent to about 7%, to push the July 90 puts up to 1.40.  This estimate is based on a moderate increase of about 6% in the volatility of July options.  The parameters I used are shown in the option calculator (inset).

After purchasing four DIA August 98 puts not long after the opening yesterday for 1.28 and taking profits on two of them later at 1.50, we still hold two with an adjusted cost basis of 1.06.  We also have four July 96 puts acquired earlier for 0.70, and we'll plan to spread off the premium risk thereof by selling other puts against them if stocks continue to fall.  Yesterday's collapse following an opening-bell head-fake was as refreshing as a summer dip in a lake, but we shouldn't allow ourselves to be lulled, since the pullback so far has not gone "impulsive" on the hourly chart. Also, the upward flick in the final moments of the day suggests there are still a few shorts who are not exactly cool about letting their profits run. Please note that by taking a partial profit on the puts, we are now in good shape to weather a breakout to new highs (specifically, to a Hidden Pivot target at 107.73 given here earlier) without getting much underwater on our position.

We hold four July 96 puts for 0.70 on a hunch.  They are apt to get bludgeoned anew when Sunday night's short-squeeze has its intended effect on Monday morning's opening.  Hold tight, for now, though, and look for a possible key reversal at the targets given for the Diamonds, E-Minis and the Dow.  _______ UPDATE:  Buy four August 98 puts if DIA gets within 0.05 points of the next Hidden Pivot resistance above, 105.92.  You should be prepared to buy four more August 98 puts later if the Diamonds get past 105.92, since that will imply they're going to at least 106.73 before a top is in.  We are going out to August because the remaining life of the July options will be shortened not only by their July 15 expiration date, but by a holiday weekend.  _______ FURTHER UPDATE (11 a.m EDT):  With DIA having topped so far today at 105.96, we bought four August 98 puts for 1.28 (they traded down to 1.25).  The Diamonds have since pulled back to as low as 105.33, but keep your powder dry to buy more puts in case this vehicle pops to the next target.  The 0.05 overshoot has NOT increased the odds that this will occur -- we'll simply consider it the margin of error. _______ FURTHER UPDATE (12:42 p.m. EDT):  Using a 1.50 offer, exit half of the puts purchased earlier this morning for 1.28. With DIA trading 105.10, the puts are currently reflected at 1.47-1.52.

We weathered a lot of kicking, screaming and flailing yesterday, but in the end, buying by Larry Kudlow alone proved insufficient to move the E-Mini S&P futures above a Hidden Pivot resistance at 1115.75 that was drum-rolled in yesterday's tout.  The fact that there were evidently no real sellers around was undoubtedly a plus for Larry, but he'll need the help of panicky bears if this lead balloon is to waft higher, as it might. In the meantime, we can use an "external" peak at 105.23 (May 19) to warn us when the pit bulls have begun to pose a minor threat to our peace of mind, if not to our hunch that a collapse looms.  We continue to hold four July 96 puts for 0.70. _______ UPDATE (June 18):  Two days of what passes for "action," and the Diamonds have yet to go any higher than 104.84.  They are getting heavy, for sure, but don't count DaBoyz out yet, since they have been able to sustain altitude while biding their time ahead of the next short-squeeze opportunity.

For your guidance, I've assumed that we now hold four July 96 puts @ 0.70, since, during yesterday morning's impromptu webinar, we had discussed shorting the Diamonds if and when the E-Mini futures reached 1110.50.   This they did, and so we made a bet against the trend. The E-Minis could still go as high as 1115.75, a Hidden Pivot, but they are likely to struggle above it.  For now, do nothing further, but you should write off the $280 in your mind, since the puts we hold were intended as a lottery ticket. ______ UPDATE:  Our rally targets (and our short position) will live to fight another day, since the E-Mini futures struggled all day to push past 1115.75, never getting any higher than 1114.75.