Think Unpredictable

Job numbers could be a catalyst to drive the market even higher.  Analysis that "higher prices" (from S&P 1295 level) are ahead in the fist week of Feb is not changed. There seems to be more upside before any downtrend.

Unpredictable things happen during expiration week, so be prepared for market gain or break at any moment. I want to ride the momentum train but want to preserve the capital. FXI, the new position opened today, align well with this strategy. A drop/rise in the China market by 7% will still be profitable for this trade. 

We were bang on the Goldman Sach direction (see earlier post). EBay should also perform well after the results.

Overall, We are running over 90% success rate for all the trades in 2012. This is significant considering the risk level for our trades. We never invested more than 50% of the portfolio at any time, and mostly got our gains from Beta (Options Greeks).

Let's ride the wave, but stay cautious. 

MyWealthyOptions.blogspot.com

Excitement of higher China GDP growth faded by the market close

Excitement of higher China GDP growth faded by the market close. Banks were under pressure after Citibank missed the estimates. Soon, we will see a big-day move to either upside or downside. Holiday shortened week has only three more trading days. 

I am expecting downside in the global market on Wednesday. China's market is overbought with about 3% gain yesterday. I'd buy FXI puts tomorrow if this stock shows any strength at the market open. I got into BBT Put, which looks overbought. BBT will report the financial result on Thursday. Either I will get out of this position tomorrow or sell Jan 27 Put to make it a spread which will reduce my investment and risk. Currently, this position is sitting at a 7% profit.

No matter how the market trade in a short term, it is likely that the market will be higher from current levels in the first week of February.

Pair Trade, and Benefit from Greeks

Last 2 weeks, I made very short term trades (Gorilla trades) assuming that market will mostly be flat. VIX was indicating complacency, so I decided to focus on short term setups. It was good to see that our assumptions proved true. Handsome gains were booked though we never invested more than 50% of portfolio at any time. 

Financial results could be a catalyst to move the market in either direction. There are many stocks with overbought conditions and they still continue to rise. Furthermore, short squeeze is giving momentum to a few weak, but heavily shorted stocks. Commodities look strong, but are under-performing due to strength in the mighty dollar. 

Bottomline, let's pick a pair trade to profit with a move in either direction. In addition, I am screening few stocks with very low option premium (Greeks). Any rise in volatility can give 20% gains even if stock doesn't move much.

It is really exciting to see that followers subscribing by email are in double digits in just two weeks of launch of this blog.

Tip of the week: Do not put all eggs in one basket. Allocate money for short-term and long-term opportunities.

It is okay to share this post with friends on social media (Facebook, Twitter).

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Our Prediction Held - 88% Gains Booked Today

What a day! All trades met their target with ease. We could have added another 50% gains, but nevertheless, 88% gains were booked today. Portfolio is already up 40% in 2012. Our positions were well-positioned for a profit even with 100 point fall/rise of DOW. 

Market has enormous strength. It was difficult for me to hold myself from entering straight vertical calls last week, so we went ahead with flat market strategies. We just followed the great words, in principle "Don't be greedy when others are." It paid off.

S&P downgraded several European nations and impact of this is unknown. Market may be looking beyond this event on Tuesday. Financial results announcement may lead to volatility in the market. Watch VIX next week. Next week is the options expiration week. It will be exciting! There are no new positions entering the next week. It may be a good idea to open long-term calls on Goldman Sach (GS). EBay will be reporting results next week. I am expecting upside.

Banks are overbought; Market is shy of resistance

Market is beneath two overhead resistances. S&P should find resistance at 1296 and then at 1307. Investors are nervous, but money on the sidelines is driving the market. 

JP Morgan will report the result before the market open on Friday. No matter how strong the results will be; S&P is not expected to close above 1307 tomorrow. Market may open volatile, but should settle in a narrow range.

Banks looks overbought. Banks triple leveraged ETFs, FAS and FAZ should see action tomorrow. I will buy FAZ (shorting banks) on any strength in the morning.

We still have two market neutral positions open. It will be either 15 to 25% gain or a loss of approximately 10%. I must rollover/ close both positions tomorrow. Portfolio is already up 29% in just 12 days. Total gains are 228%.

Spot On

Our prediction for today was spot on. Market as predicted, closed flat, but not before a minor dip in the morning giving us an opportunity to close positions at a gain.

I opened two trades for a neutral market and one put for technical pull back. 

MGM not only over bought, but also trading right below 200 days moving average. It should struggle rallying, and a small pull back should give us 10% gain within five days. There may be a massive rally if it crosses 200-day moving so let's have a strict 10-15% stop loss. 

Master Card was downgraded by Goldman Sach today. It should stay between 333 and 350 by Friday's market close. A close at 340 may double our position. Financial will be active on Friday, so we will see.

Most of the shorted stocks will out perform if the market continue to rally. Watch GME, FSLR, X, NFLX, GMCR, and other heavily shorted stocks.

Overall, market is expected to trade in a narrow band between 1280 and 1305. JPM will set the tone for the banking on Friday before the market open.

Advising caution

Do you think the market will continue to go higher after breaking the upper resistance at 1285?

My guess is yes, but not until a small correction kicks-in. 

If the market holds tomorrow, then probably we will see S&P at 1315 in a short term. As such, I'd still play on both short and long sides. When CNBC pundits predict directional move, retailers usually come in at the tail end of the move and in fact, lose money. It seems that we are at a tail-end of the directional move, at least for the next 5-day period. 

Commodities and banks will under perform if there is a mild market correction. Consider weekly credit premiums (call side) above SPY 131. 5-10% gain within three days will be juicy. Global markets will be flat to negative tomorrow.

Our open positions look good in spite of about 14 points rally in Nifty over the last two days.