DIA

I have a hankering to take something short over the weekend, but if you agree, you'll do better picking your own spot on-the-fly rather than using mine based on a Thursday-night guesstimate. Nevertheless,  if the Diamonds rally on the opening without having exceeded yesterday's 103.59 low, you should take your shot at 104.86, a midpoint pivot. So that you can adjust if opening-bell weakness obtains, I have included a chart that shows the relevant pattern. ______ UPDATE (104.17): A head-fake on the opening to 105.27 was shortable, although the modest selloff that followed over the next few days would not have produced much in the way of gains. 

Let's use a 105.45 rally target to get short. December 105 puts (DIAXA) would be a decent buy for around 1.57 at that time if you want to use a limit order, but that's just a guesstimate, and because there is risk that you could miss the trade, I'll make the order catch-as-catch-can (as opposed to a Pick of the Day that could be executed on autopilot).  Officially, we'll buy four Dec 105 puts if DIA rallies to 105.42.  A 105.61 stop-loss is suggested. _______ UPDATE: DIA went no higher than 104.98 before diving, so we did nothing on the order (which you should cancel).

There's a promising Hidden Pivot resistance at 101.79 where we can attempt to get short. Buy two December 100 puts (DIAXV) if the stock rallies to within three cents of the target, and place a stop-loss at 102.01.  I estimate that the puts will be trading for around 2.45-2.50, if you want to use a limit order. ______ UPDATE: The Diamonds never got higher than 101.20 on the last thrust, so we'll scrap the offer.

Our short offer at 101.82 got stranded despite an encouraging short-squeeze on the opening. The Diamonds never got any higher than 101.20, and because they fell so hard into the close, we're likely to have plenty of company if we continue to look for a short entry. Let's give it a day and see if option volatilities continue to climb out of sight.

Using a 100.51 stop-loss, we covered a round-lot short whose adjusted cost basis was 101.68. The trade would have produced a gain of about $117 for anyone who followed my instructions exactly.  The fact that the Diamonds got nowhere near their target on the correction suggests they are eager to run. Going forward, bulls should use a 101.82 target to manage risk on the way up, and bears can short there aggressively with a stop-loss as tight as they deem prudent.

We are short a round lot, effectively from 101.68 after closing out half of the original position at 99.74.  Tie it to a stop-losss at 100.51, but plan on shorting a November 98 put against the DIA if it falls to 98.95.  That's a few ticks above a Hidden Pivot target, and therefore a good place to try and "work" the position.

The rally spike in the final seconds of yesterday's session pushed the Diamonds to a high that lay just 0.02 points above the 100.65 target flagged here earlier in the week.  Although I typically don't advise taking positions that late in the day, I'll  establish a tracking position for the guidance of anyone who took the short: 200 shares from 100.65. For now, tie them to a stop-loss at 100.71, but bid 100.31 or better at the same time (i.e., o-c-o) to cover half of the position.  Those who earlier played the rally from 98.77 in the way I'd suggested, buying Dec 101-Nov 101 call spreads for 0.65, can take profits at will, since the spread is an easy sale in the mid- to high 0.70s. _______ UPDATE (9:58 a.m.): The Demons opened on a nasty gap down, allowing us to cover half the position at 99.74. That gives us an effective cost basis of 101.68 for the round-lot short remaining.  Tie it to a 100.32 stop-loss for now. Today's weakness projects to 99.42, a Hidden Pivot midpoint whose breach would spell more trouble down to as low as 98.88. Those numbers will remain valid as long as the point 'C' of the pattern, 99.97, remains intact.

A Hidden Pivot at 100.73 looks like a potentially fat pitch for those of you who have waited patiently to get short. We'll look to buy some December out-of-the-money puts if and when the target is closely approached, so stay tuned for a possible intraday update. Meanwhile, a cheap way to play the rally would be to buy Dec 101-Nov 101 call spreads for 0.65 or better. If you fill, please let me know in the chat room or via e-mail so that I can establish a tracking position for your further guidance.

We can use a midpoint support at 96.97 this morning to attempt bottom-fishing in this vehicle. Bid 1.55 for two October 97 calls (DAVJS), but stop yourself out if the stock trades under 96.89.  DIA would be signaling more weakness over the near term to as low as 95.58 if the stop is hit. _______ UPDATE (10:20 a.m.):  DIA was trading below the stop when the calls hit 1.55, but if you bought them anyway your loss on exit moments later would have been no worse than $12 per contract.  The 95.58 target is still valid.