SPY support and resistance

All these prices are important points for SPY:

MA(50):   200.6
MA(200): 205.01

Support:

208, 207.24, 206.4, 204.4, 202.4, 201.6, 200, 199.50, 198, 197, 196.01, 194.35, 191.7, 190.50, 188, 183, 182.4, 181.92, 173.71.

Resistance:

210.25, 211, 212.24, 212.59, 213.35, 213.78

why trade weekly options?

Trading weekly options  has the potential to offer quick turn around on your capital. 
In my observation weekly options has a higher probability of expiring worthless then the monthly option contracts. 

Although the premiums are lower but if done right the return may be higher in the weekly's. 
Out of the money weekly options on indexes and etf's offers enough premium to sell
at lower cost/margin requirements. 

In my strategy I choose a balanced portfolio of etf's to offset the risk on either side, the candidates have highly liquid options contracts, strike prices are 1 to .5 points apart and finally the underline has enough implied volatility offering adequate premiums to offset fees/commission costs and turn into a profitable trade.

weekly Iron Condors - best fits for my trading

Some candidates for the weekly Iron Condors:

EWZ:

EWZ 28 Feb 14 (W) 38.00 Put
EWZ 28 Feb 14 (W) 38.50 Put
EWZ 28 Feb 14 (W) 42.50 Call
EWZ 28 Feb 14 (W) 43.00 Call

PCLN:

PCLN 28 Feb 14 (W) 1290.00 Put
PCLN 28 Feb 14 (W) 1292.50 Put
PCLN 28 Feb 14 (W) 1345.00 Call
PCLN 28 Feb 14 (W) 1350.00 Call

SPY:

SPY 28 Feb 14 (W) 180.50 Put
SPY 28 Feb 14 (W) 181.00 Put
SPY 28 Feb 14 (W) 186.50 Call
SPY 28 Feb 14 (W) 187.00 Call

UNG:

UNG 28 Feb 14 (W) 25.50 Put
UNG 28 Feb 14 (W) 26.00 Put
UNG 28 Feb 14 (W) 29.50 Call
UNG 28 Feb 14 (W) 30.00 Call

VXX:

VXX 28 Feb 14 (W) 39.50 Put
VXX 28 Feb 14 (W) 40.00 Put
VXX 28 Feb 14 (W) 46.50 Call
VXX 28 Feb 14 (W) 47.00 Call

Bollinger bands and indicators ...

Perhaps one of the most interesting aspects of Bollinger Bands is the rhythmic contraction and expansion of the bands you can see on the charts.

In general,the idea is that while price is neither cyclical—in a regular sense—nor forecast-able using cycles, volatility is both.

The most interesting conclusion is that low volatility begets high volatility and high volatility begets low volatility. This is the foundation of The Squeeze.

Bollinger bands and indicators

• %b is derived indicator form BB, first,%b,tells us where the price is in relation to the Bollinger Bands and is the key to linking of price and indicator action. The formula evaluates to 1.0 when the last price is at the upper band,0.5 at the middle band,and 0.0 at the lower band.

It will exceed 1 when the last price is above the upper band or will fall beneath zero when the last price is below the lower band. At 1.1 it says that we are 10 percent of the BandWidth above the upper band,and at 0.15 it says that we are 15 percent of the BandWidth below the lower band.

%b is a truly relative tool, it tells only where we are in relation to the framework created by the Bollinger Bands. 

• BandWidth,tells us how wide the bands are. BandWidth is the key to The Squeeze and can play an important role in spotting the beginnings and ends of trends.

BandWidth is most useful for identifying The Squeeze,that situation where volatility has fallen to such a low level that its very lowness has become a forecast of increased volatility. The simplest approach to this is to note when BandWidth is at a six-month low.

An important use of BandWidth is to mark the beginning of directional trends,either up or down. Many trends are born in trading ranges when the BandWidth is quite narrow. A breakout from the trading range that is accompanied by a sharp expansion in BandWidth is often the mark of the beginning of a sustainable trend.

A strong trend will cause a large expansion in volatility that causes the bands to spread dramatically,so much so that the band on the other side of the trend—e.g.,the lower band in an uptrend—will head in the direction opposite to the trend. When that band reverses—turns back up in this case—that leg of the move is at an end. This also can be seen and enumerated in BandWidth. The idea is when BandWidth flattens out or turns down enough to reverse the direction of the Bollinger Band on the opposite side of the trend,the trend is at an end.

Trade management

What is necessary to win this game?

Establishing an edge ..

 A simple probability of one thing happening over another.

What is my trade management strategy:

• Should I use stops? 

What and where the stops will be if I use them.

• Am I going to be:

all-in/all-out

all-in/scale-out

scale-in/scale-out

scale-in/all-out

• What will be my target price to exit? 

Is it a reasonable price point?

•  What is the focus of my strategy:

Is it to maximize profits?

To minimize risk exposure..

or to maximize emotional control..

I Will commit to taking at least 30 trades using this trade management strategy:

Take notes on every trade to measure errors

Errors to be measured:

Not entering a trade when I had the signal

Entering and then changing my trade management start

Chasing a planned trade

Execution errors (e.g., on the platform)

Impulsive trade

• If the trade management start change, then I will start a new trade sample (30 trades)
• Once the series is done, I will have a better idea on how well the edge works.
• My ultimate goal, however, is to build intuition and trust in myself... so that I can execute flawlessly!

Options Greeks

Delta:

Positive Delta positions gain value as the price of the underlying instrument goes up, while Negative Delta positions gain value as the price of the underlying goes down.

Buying calls creates a Positive Delta position.

Selling puts creates a Positive Delta position.
Buying puts creates a Negative Delta position.

Selling calls creates a Negative Delta position.

Options Spreads - will provide Deltas equal to the positive Delta Options minus the negative Delta Options, and the final result can yield negative or positive Deltas depending on the composition of the spread.

A Credit Spread Call Vertical (Bear Call Spread) that is set up OTM will be a negative Delta position, since the negative Deltas of the short strike will be larger than those of the positive Deltas of the long strike.

A Credit Spread Put Vertical (Bull Put Spread) that is set up OTM will be a positive Delta position, since the positive Deltas of the short strike will be larger than those of the negative Deltas of the long strike.

Delta Size:

A long call will generate positive or “long” Deltas equivalent to the number of contracts traded times the actual Delta value of that Option. A long put will generate negative or “short” Deltas equivalent to the number of contracts traded times the actual Delta value of that Option.

Gamma:

Is the measure of the change of an Option’s Delta value with respect to a one point move in the price of the underlying instrument.

As Options sellers, we will almost always be dealing with Negative or Short Gamma positions. Negative Gamma positions lose value as the price approaches the position.

When Options are well out of the money, Delta values change very slowly with changes in the underlying price. The closer that the position gets to the money, however, the faster that Gamma ramps up and “accelerates” the movement in Delta.

A Credit Spread position has Negative Gamma characteristics which means that it will lose value as price approaches the short strike price.

A Debit Spread position has Positive Gamma characteristics which means that it will gain value as price approaches the short strike price.

Theta:

Is the measure of the change in an Option’s value with respect to a one-day change in time.Should be positive, If this “Theta” number is positive, then it illustrates how much your position is gaining value every day as a result of Theta.

If you see a positive number that represents the Theta of your entire position, then you’re doing something right with your Option selling strategy.

Selling Puts creates a Positive Theta position, and Selling Calls creates a Positive Theta position.

Selling a Credit Spread means that the Positive Theta of the short Option is larger than the Negative Theta
of the long Option, so the position will be Positive Theta overall.

Vega:

Is the measure of the change in an Option’s value with respect to a one-percent change in volatility.

If this number is positive, then it illustrates how much your position will gain with a rise in implied volatility.

Generally when you sell an Option, it’s better to have volatility contract after you’ve entered the position, as opposed to expand after you’ve entered the position.

Credit Spreads and Short Options are SHORT VEGA positions, which gain value when implied volatility drops.

Debit Spreads and Long Options are LONG VEGA positions which gain value when implied volatility rises.

Credit spread is a Short Vega position, it will gain value as the implied volatility drops.

Much like Theta, the effects of Vega dissipate with time.

The effects of a change in implied volatility will have the most dramatic effect on longer-term Options vs. those about to expire.


For the purposes of a Credit Spreads you want:

Delta:      Neutral
Gamma:  Negative
Theta:     Positive
Vega:     Negative

Inverse Strategy:

Buy calls when the stock is down.
Buy calls when the Mkt is down.
Buy calls when the Industry group is down.
Buy calls when the call is down.

Do inverse for puts.

Today I did something unusual I bought 120 'Shares' of BIDU instead of just the options. 3 contracts of BIDU puts.

When a stock is moving up (erratically):

Buy a call of a lower strike price (e.g., 24) and sell a call of a higher strike price (e.g., 28) of the same expiration date.

Explanation: if the stock moves higher from 24 - 30 the 28 call will not appreciate as much as
the 24 call. If the stock moves lower, the call you are long will not loose value as much as the call you are short thus you can cover the short call at a lower price.

When a stock is moving lower (erratically):

Buy a put of a higher strike price (e.g., 28) and sell a put of a lower strike price (e.g., 24) of the same expiration date.

Explanation: if the stock moves lower from 30 - 24 the 24 put will not appreciate as much as
the 28 put. If the stock moves higher, the put you are long will not loose value as much as the put you are long, thus you can cover the short put at a lower price.

Case in point (FSLR): I believe the stcok will move down (erratically)

BOT to Open 3 Jun $240 put Executed $10.00
SLD to Open 3 Jun $230 put Executed $8.10

Current price of FSLR = $256

Lets say if it moves to $245 the $240 put will be worth $4 and the $230 put be worth $0. So the profit = $2

buying calls when the stock is down

These days, I am trying somewhat of a contrarian strategy, i.e., buy calls/puts when they become cheaper, regardless of the movement of the (underlying) stock.

few days ago, I bought FSLR puts when the stock was (up almost $20 that day).

Since I have been observating FSLR's movements, moving up and down very erratically each day and I had tried to stay on the short side of this stock for a long time. Always, just buying puts and keep loosing, as the stock will move down one day and more down the next day but then suddenly it would jump higher the next day. As if someone is deliberately trying to shakeout the put holders. That up day would make me so scared of loosing it all that I would immediately sell. But the day I tried the inverse strategy, it really worked well, it made a turning point for my trading as well.

Today I am testing the same strategy with MA (master card). I bought calls while the stock was down -$10. Though it may be wrong to apply something that worked for FSLR to another stock.

There was also another factor in buying calls on MA today; early morning MA was down $10 but when I checked the options, strangely, they were all high, contrary to what happens in most other stocks. I thought may be someone knows something. The stock may be coming back up.
With this rationale, I bought the 3 calls.

The stock has not come up, has moved down and ending -$13 for the day. But since I am holding the position until next day, it will be interesting to see how the stock moves tomorrow.

Paper trading

GOOG Jun08 $640 PUT
GOORH Buy to Open 1 Limit $63.80

FSLR Jun08 $290 PUT
HJQRV Buy to Open 4 Limit $15.20

BIDU Jun08 $360 PUT
BPJRL Buy to Open 3 Limit $17.80

DRYS Jun08 $100 PUT
DQR RT Buy to Open 3 Limit $9.00

Buying Tech and Oil Calls

RIMM Jun 2008 145.0000 call (.RULFI) $5.6
RIMM Sep 2008 145.0000 call (.RULII) $15

AAPL Jun 2008 190.0000 call (.APVFR) $8.1
AAPL Jul 2008 190.0000 call (.APVGR) $11.6

V Sep 2008 85.0000 call (.VIQ) $8.2

QCOM Jul 2008 47.5000 call (.AAOGW) $1.8

VLO Sep 2008 50.0000 call (.VLOIJ) $3.94

TSO Aug 2008 25.0000 call (.TSOHE) $3.0

XTO Aug 2008 70.0000 call (.XTOHN) $3.6

Trading requires discipline; unclouded, unbiased thinking; and the willingness to admit mistakes without ego intervention.

Discomfort and profit go hand in hand.

Does all that mean that a trader is always uncomfortable and that monetary winnings come at the price of constant stress and depression? No, it does not.

The joy of self control, of getting the best out of oneself, of being able to pull through is a huge reward.

With time, this approach stops being uncomfortable and becomes the only approach that feels right.

Historical Volatility Vs Implied

90.40 +8.39 +10.23%

Symbol	IV	HV	Last Price($)	Date	--
GOOG	42	48	465.7	04/02/08
BIDU	75	86	281.48	04/02/08
RIMM	66	66.5	121.75	04/02/08
DECK	66	74	113.36	04/02/08
DRYS	79	88	59.98	04/02/08
EQIX	53	63	70.77	04/02/08
FWLT	56	75	59.47	04/02/08
FXI	52	61	142.15	04/02/08
GS	42	52	176.9	04/02/08
LEH	88	165	44.07	04/02/08
OIH	37.5	43.5	183.44	04/02/08
POT	58	60	161.09	04/02/08
RTP	47	53	429.3	04/02/08
SKF	77	102	101.23	04/02/08
SPWR	74	84	81.8	04/02/08
CME	58	44.5	508.10	04/02/08
X	58	64	132.65	04/02/08
PCU	52	57	106.04	04/02/08
CEO	53	57	155.39	04/02/08
FLR	48	61	148.78	04/02/08
SNP	58	65	92.4	04/02/08
HDB	61	77	104.1	04/02/08
UBB	48	53	122.75	04/02/08
DO	44	46	117.7	04/02/08
RIG	40	43	136.5	04/02/08

Symbol	IV	HV	Last Price($)	Date	--
ISRG	69	50	340.02	04/02/08
FSLR	80	65	249.55	04/02/08
AAPL	46	44	147.4	04/02/08
AMZN	57	56	77.37	04/02/08
PTR	59	56	131.00	04/02/08
SHLD	53	47	107.61	04/02/08
MA	53	37	223.75	04/02/08
CLB	38	35	121.82	04/02/08
DE	41.5	39	81	04/02/08
BG	62	50	88.18	04/02/08
CMI	53	52	49.44	04/02/08
SU	42	41	96.34	04/02/08
WYNN	53	50	111.19	04/02/08

VIX:VXV Ratio

Expect the VIX to have a tendency to fall and the markets to rise when the VIX:VXV ratio is above 1.10

Look for the VIX to rise and the markets fall when the ratio is below 0.90, in classic mean reversion fashion.

( VXV, which is analogous to the VIX except that it uses a 93 day time horizon in lieu of the 30 day time frame of the VIX)

VIX/VXV = 0.98

Volatility in DISH today

the spike in volatility...

the stock has been up 16% for the week but as volatility spiked the stock fell 8%

http://www.info-logics.com/charts/stg1.html#DISH

Finding daily ranges on selected stocks

I am searching for stocks that have wide daily range of at least $10 or more …

Finding such stocks, I will buy calls or puts, depending on the direction the stock is moving that day …

The question is how to find such stocks that will fulfill these criteria?

I consider two variables

Volatility?
Difference in days high and low: Range = Day’s High – Day’s low

I have observed that stocks with the following characteristics :

High Beta (> 3) has higher ranges.
Stock price has to be high enough to have a range (> $100).
Avg. daily volume has to high (> 1 million).
Options volume has to be large as well.
Stock must have some movement (last volume > avg. daily volume) for the day to be traded.

Some of the stocks listed below have come close to my criteria:

SPWR, FSLR, POT, BIDU, PCU, RIMM, RTP, PTR, CEO, FLR, CLB, SNP, HDB, FWLT, EQIX, UBB, DECK, DE, AAPL, DO, WBK, BG, RIG, MA, CMI, ISRG, SPW , SU, PKX, WYNN, GOOG.

Although they are all well know stocks, and could be considered as momentum stocks as well in today’s market (that is not the reason for me to trade them).