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I’m in RUT BW put fly here:
I will add another fly at 1120, and I will manage the greeks at 21-25 days to expiration
Let’s start off the week’s analysis with a look at this chart:
This is a little hard to decipher, so let’s just step through it.
The chart on the right with all the numbers is a variation of a market profile chart. It shows us 30 minute time price opportunities (TPO) and stacks them.
And keep in mind, this may all seem like voodoo but it’s just another language. We could do this with candlestick analysis as well.
This allows us to see where the most trade facilitation has been going on.
In a “normal” market, if there ever is such a thing… the areas with the most trade facilitation act as a magnet and low trade facilitation represents rejection.
Peaks = magnets, valleys = rejection.
What happened on friday was pretty amazing.
The S&P 500 gapped down into the peak right around 2030. And to be fair, I’ve been watching that level as my over/under price.
It made sense for the market to sell off lower as we had an unfilled gap right around 2048.
When I talk about watching price action, it comes down to this… whether I think the current price is being accepted or rejected.
The true bearish scenario would have been acceptance at these levels as more willing sellers come in, and then you have a 2-day island top that formed and would most likely lead to lower prices.
Yet we didn’t see acceptance, we saw aggressive rejection and an auction back up to 2050.
The next thing to look at is the “Shelf” at 2050. This is where a valley turns into a peak really quickly.
Normally a shelf will act as a level of either support or resistance, and we didn’t really see that happen.
And then finally we saw a continued auction into the end of the week. Orders jammed higher
If you want a less nuanced term, the market had a bullish engulfing candlestick on friday:
Simply put, the market strength should continue into this week.
Unless we see price action otherwise, we need to assume that the same kind of motivated buyers who came in on Friday will still be around.
One strategy I’ll be using here is buying straddles and strangles on stocks that have earnings coming up.
The idea here is that stocks can move big in anticipation of earnings, and the option premium will stay bid as more hedgers come into a stock.
On my list right now is GOOGL and BAC.
@Jared yes, but considering the total size put on I’m going to try and milk it for all its worth.
Everything is risk off except for US stocks.
Here’s treasuries:
The Yen is stupid strong. Chart of USD/JPY. Remember yen is the denominator so down -> up
And crude oil just finished a 7 point selloff without any kind of proper fear in oil stocks.
Oh yeah, and high yield debt, while it did bounce, is nowhere close to 52 week highs:
That whole credit risk narrative that was around at the beginning of the year?
You know, the whole “oil companies can’t pay their debt” and something about emerging markets.
That’s still around.
My bet is still on volatility contraction into earnings season, but if these risk-off plays continue to stretch they will take stocks with them.
PYPL is completing an “FBF” pattern.
FBF = Failed Breakout Failure
So the stock cleared 40, broke out, sucked a bunch of people in, then the stock got slammed back to 37.
All those buyers have lost the high ground and we are in the middle of a “stop out” process.
Once those sellers get out of the way, that’s the time to look for long entries.
Ideally look for a final move sub 37.50 and for that move to fail. That will be a good entry point.
The other setup is to wait fro strength and the stock to get back above 39.50
If you want to spend your lunch hour staring at some charts, here is JPM’s quarterly research
New trade in HLF
Taking a stab at those FB 115 calls, half size @ 3.85 for now. May look to add on more weakness today.
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