SPY Follow Up

Yesterday we entered SPY April $190 Puts... Trade Idea: SPY PUTS with the understanding that it would be a short duration trade, thus the need for leverage and the reason I used April options when I'd normally go further out.

"I'm going to enter what I think for the moment, will be a short term trade, however the longer term set up I don't think is far behind and I think you'll understand what I mean when I get out the next Broad Market Update I'm working on.

In the meantime, I'm looking for a quick move down in the market, I'm targeting the SPY April $190 PUTS, full position size."... From Trade Idea: SPY PUTS yesterday.

Here's the P/L and the reason for the closure of the position and what I'm thinking as the next move.

This was the full size position from yesterday's opening of the SPY April $190 puts, 100 contracts at a cost basis of $2.10

 The fill was $2.49, putting the gain at +18.5% which is fine, I wasn't expecting a large move yet.

About those expectations, as you look at the charts try to keep in mind what out perspective was as of yesterday without hindsight of today's charts. This also ties in to my earlier post on the smaller cycle trend.

 SPY 1 min, note what the chart looked like as of the close yesterday, today we see a small 1 min positive divegrence forming, although it's in Leading Negative position, this is like a small intraday bounce, there's no where near enough objective evidence for mew to trade this long, even though I think the probabilities are for an intraday bounce...once again the difference between probabilities and a high probability/low risk trade as well as dealing with emotional issues, in this case GREED or fear of missing a move.

 Looking at the exact same 1 min chart a bit closer, you can see yesterday's 1 min negative, although there were many more charts than just a 1 min and today you see a move in price JUST BELOW yesterday's afternoon intraday lows (typical shakeout of short term traders) and a positive divegrence intraday today at those lows.

This is the same chart looking at the SPY 1 min ion an intraday basis, my gaol with options is to get out BEFORE there's any slow down in momentum. We "should" see a small rounding/reversal process even intraday, but by the time that comes, the probabilities are high that the loss of downside momentum and time decay start eating away at the gains, thus I want to be out before that happens and if I have the chance, I can always re-enter the position at better levels in to some price strength/3C weakness.

This is the 5 min chart of the SPY's mini cycle, THIS IS WHERE IT'S IMPORTANT TO LOOK AT THE CHART FROM YESTERDAY'S PERSPECTIVE.

I said that I expected this to be a short duration trade, the reason why is yesterday we were making our first leading negative 3C low as you can see the first lower 3C low, thus we don't have a large or mature leading negative divegrence. Today we have added to that leading negative low with a second one so the next SPY PUT position (if it sets up), will likely be a longer expiration position, likely May depending on how deep the signal is and what the rest of the market, VIX futures, HYG, etc look like.

Other indications that would have given me more objective evidence to take the gains on what was expected to be a short duration trade would include VXX which usually trades opposite the market and its 3C signal intraday.

 VXX's intraday 1 min was going negative so that tells me it's likely to move down and the market up, thus I want to plan my trade and trade my plan and take the gains before that happens.

If you're not using 3C, there are a lot of other ways from MACD, Stochastics, RSI, etc, but  the intraday NYSE TICK and a few trendlines is a great indicator for early warning of trend changes intraday.

 Here's the channel of the 1 min NYSE TICK data which everyone should have, I don't want to wait until it's trending up, but note the small area where a lower low isn't made while we are still in the downtrend channel... that's early warning.


Or conventional indicators like a 50 bar moving average wghich I prefer on a 5 min chart as that's what a lot of day traders use, but that's too long for this kind of trade so a 50 bar on a 1 min chart does the job...

 I want to get out just as there's evidence of a turn in the m.a.

Or even better... Everyone wants to use the hottest new indicator or Holy Grail, but you can increase the accuracy and lead time on signals by using that boring old standby, ROC (Rate of Change) and apply it to some of your favorite conventional indicators.

 ROC of the 50-bar 1 min ma shows a divegrence and that's early warning that the trend is changing or at least the character or the trend.

Or... For Worden users since you can't apply ROC directly to price, apply it to a 1 bar moving average of price which is the same as price and make the m.a. invisible, apply RPOC to that and you are using the ROC of price.

Again a divergence showing the character of the trend is changing and changes in character lead to changes in trends...

I hope some of you made a nice little double digit return for barely any market exposure.