First the update
First the intraday negative divergence on the SPY 1 min.
The 2 min's trend and the intraday negative divergence. For all of you using 3C, my interpretation of this is a strong underlying trend with an intraday pullback. The market is dynamic, there are very few days I've seen in which the market simply travels in one direction, but something inside of us as humans expects things like that. For instance, if I were to say, "Tomorrow will be a strong day up", most people would expect a day that moves almost entirely up with no intraday pullbacks or consolidations, that's just not realistic. Many on the sell-side of the game or the pros, make their money through volatility and movement so it will always be there. The only real exception I have seen is a short squeeze.
At 3 mins we don't have an intraday negative divergence so I don't see this as anything to be concerned over for the near term expectation of a continued move higher.
The 5 min position and trend trump all intraday charts and this still looks very good for continued upside despite intraday volatility. Remember I recently showed you hoe daily volatility has DOUBLED over the last several months so intraday pullbacks are bound to be much bigger than what you might be use to with the ATR or daily range doubling over the last few months.
In my opinion, this is exactky what shorts are looking for and I think the market doesn't mind throwing shorts a bone to lock them in. The short term trend is down, today's move up represents an opportunity for shorts to enter at better prices and they'll likely do so.
If the market can fly-trap more shorts, then when the market moves higher, those short serve as fuel to push the market higher as they cover at a loss.
As for me closing the SPY Calls, the reason is time decay or if you manage trades using the Greeks, then Theta. With the current gain I had today and time decay/theta becoming a bigger issue, I'd have to see a move much more significant than today's just to get back to where the profit on the trade was today. If the market is going to move higher and my position is not going to benefit from that move, then I'd rather close it as an open trade always represents risk and in this case, risk that has no real strong probability of further upside because of the July expiration time decay.
Instead, I can wait for a pullback and re-enter the SPY trade which because of the July expiration is doing better than the IWM trade entered the same day with an August expiration (40+% vs 11%). If I feel VERY strongly that we have a signal on Monday (I won't enter July expiration trades on Friday) then I might choose July again, but this would have to be for a VERY short position of a day or 2 at most.
Otherwise, I'd be looking to enter August expirations.
I warned many months ago as the top became more clear that volatility would increase, randomness would increase and the chances for a Black Swan event that even Wall St. may not see or be prepared for would increase. This is exactly why I held on to the core short (non-leveraged) positions in the equities model portfolio that were entered between March and May 1 on market bounces, as a result, nearly every single one is still at a gain and some very significant.
Again at the June 4 lows, longer term leveraged longs in the equity model portfolio were entered as a hedge for the shorts. These are the only two long term trades (I rarely even look at these on a day to day basis) that have been entered, both at market extremes (the shorts at the highs, the longs at the lows), as a result almost all are in the green and some very significantly. Ultimately I prefer longer term trades, but until we reach another extreme, this is not the time to try to force long term trades on the market, the Twitter/Stock Twits stream will confirm that as traders are going through a meat grinder.
I'm not fond of options generally speaking, but I also don't want to sit for months with no trades so they are used sparingly in situations in which probabilities for a move are high, but percentage gains are low, then they make sense, but I don't want to play options the way Wall St. wants me to, I want out ASAP, options are set up in every way to benefit the writer and take money from the buyers, the answer? Just don't play by their rules.
