The "Trendy Trader" right now is called a momentum trader and today we pulled a momentum stunt in closing IWM puts as they were falling like a rock and VXX calls as they were shooting up, it doesn't make a lot of sense does it? You'd think, "This trade is working, why exit?"
The reason is simple, Wall St. isn't going to allow momentum chasers who got in today on the short side to hang around. Those who bought the dip are going to feel like geniuses tomorrow, we bought some dips today with GLD and USO, but note I said these are likely going to be short term trades, especially in the case of USO which has bigger problems than Gold, although a price chart alone won't tell you that.
So options are worth their most when there's momentum and I always want to get out before that momentum fades. Tomorrow, even if we get higher VXX prices and lower IWM prices, chances are, the P/L exiting today was a lot better because of the momentum. You can't look at options the same way as stocks.
So here's where we ended up... Earlier I said both of these were entered yesterday, in fact they were entered the day before, Monday.
The IWM P/L came out to a +49% gain
The VXX P/L came out to a 35.8% gain
This is a bit ironic because I just said yesterday that we'll be getting back to more guerilla hit and run tactics with options.
It was just early May that we had 10 option trades in 2 days alone with double digit gains of +42%, +59.5%, +36.8%, +86%, +53% and +.73% and only 1 loser of -7%.
This market has been VERY extreme, more so than I can remember in quite some time, now we know why, actually we've known why and have been building the case the F_E_D was moving toward this since September 13th so it comes as no surprise to me and shouldn't to you if you've been following.
As I have been saying, the market in my view has been expecting this since at least September when I started to suspect it, I've pointed out numerous times that the large base in the $USD coincided with the September meeting in which they started changing the yardstick so they could exit earlier.
If QE sends the $USD lower, what would cause smart money to accumulate the $USD? Did you see $USDX futures today? They hit a low and a high of the week as the market declined-I'll talk more about that later.
Here's the base in the $USDX, the start of accumulation lines up with the September meeting in which they announced QE3, but more importantly, they changed the yard stick which was the first clue they were already planning their escape route and every meeting since then they have advanced that agenda. The base above I believe bears this out that smart money feels the same way, why else would the $USD be building a base and just breaking out just before today's news? QE on= Dollar down, QE off= Dollar reverting back to the mean on the upside.
We are definitely on the right track, as mentioned earlier, not as bragging rights- this is truly educational to show sentiment, but to show on the biggest day of the year, we were positioned correctly as our options tracking portfolio went to #9 of 709 competing portfolios and these are small positions, not swinging for the fences like most option traders do, it's also a tracking portfolio to track all positions, obviously I'd never be able to trade all these positions.
This is the rank for the week.
The point being, most people went in to today positioned totally wrong, we saw this yesterday in our sentiment update. We've seen the signs, we've seen the signals, it's been an extreme market and we know why now, Wall Street knew what the catalyst was and was going to sell and sell short right up until the catalyst, we can see them doing that, but we didn't know what or more appropriately, when the catalyst would be, although with the size and pace of distribution that is close to Dow 1929 levels, it was telling us pretty clearly it wasn't going to be good and it couldn't be too much further away. I will tell you, I've never seen a market this extreme before and I think our options performance previously and at the beginning of May bears that out with 90% winners in options where 90% of contracts expire worthless.
I/we have some other open positions that I'm sticking with, especially the June, I believe there's an IWM, SPY and XLF for this week, where they are now I'm just leaving those open because when the market gets to the position its in now, things get very unpredictable and I'd rather just leave those open than take crumbs. The rest of the positions are monthly June, actually the bulk of them.
I always post the open and close of positions and try to do it before the positions are placed in the tracking portfolios, but if I don't place a closing report on options expiring on that day, it's because they are worthless and there's no point in me wasting my time closing a worthless option when there's nothing productive at all about it.
I did have to go back and search around for these for a while, but the positions that closed worthless last week were XLK$125 puts for approx. a -$2268 loss, QQQ 74 puts for a -$4250 loss and IWM $97 Puts for a larger than normal $7880 loss. I usually try to keep these around 5% of portfolio or about $5k unless I feel very strongly about them or more often, get a positioning that I think looks great. The new website that is being built (which I can proudly say thank you as we are at capacity for the GOOGLE hosted site now-we only have 2 spots open for new members after which point I'll have to refund new members signing up until we have the new site up, as GOOGLE just won't allow any more for the hosting we use) will track these positions and make it easy for you to track them as well. As well as many other member upgrades, I may even add a surprise.
Now that we are through the extremes of this market (for the most part) and like I said, I've never seen a market this extreme simply because I don't think there ever has been one. We have unprecedented F_E_D intervention for an unprecedented period of time, but I believe we are over the hump.
I have a lot to share with you, but it's mostly things I've been showing you every day and I REALLY need a rest (even for just a night) after digging through this market so extensively this year. I will touch on the important topics and some strategies, maybe even a few new tools.
Talk to you soon...
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