October 25, 2015 at 9:42 pm #4452Steven PlaceKeymaster
I’ve spent all day dodging mobility scooters at Animal Kingdom, DisneyWorld, Orlando, Florida, U.S.A.
You’d think that there would be *some* relief in the weather as it’s nearly November, but it’s nearly 90 degrees and super humid, which is not so great for our 10 month old.
Welcome to IWO’s workcation 2015. I’ll be around on a limited basis as we haven’t had a proper break since the kid was born.
Instead of cutting a video today, I’ll just put my thoughts out on the screen.
When we talk about analyzing the market, one of the advantages I pursue is understanding the motivations of as many players as possible.
Right now we’ve got 4 rough groups of people watching the market:
1. Those that bought in first half of 2015 and held through the crash.
2. Those that sold during the market crash and still in cash
3. Those that bought during the market crash
4. Those that have been in cash for a while waiting for a bigger dip to buy
Simply put, the main character of the market has been driven by group 2.
You’d think that as we come into previous support that there would be some selling come in… but the FEAR OF MISSING OUT is much greater than the fear of a greater dip.
That fear, that anxiety, is often known as the “wall of worry.” And yes, the markets have been grinding higher simply from a lack of sellers (because all those that wanted to sell already sold and are in group 2) but on Friday, there was a massive reaction on the back of earnings, specifically GOOGL, MSFT, and AMZN.
We’re now entering the “realization” phase of this market, where those from group 2 are getting forced back into the market.
Once you get enough of those people loaded back up, then they will manifest as a lack of demand and price reverts.
KEEP IN MIND, sure the markets have been grinding higher but it’s been exactly that– a grind. The big gap up on Friday got us back into a proper overbought market again.
Now do we need to correct? To crash through the lows from two montha ago?
Not necessarily… markets can correct through price or time (or both). What we saw for the entire month of October was basically a correction through time.
The base case for me now is sideways action. Unless the SPX breaks sub 2000 this week then buyers will stay in control until proven otherwise.
In terms of strategies now…
Index bear call spreads make a LOT of sense right now. I’ve been talking about them for a while now but advocating a “scaling” approach because it felt early, but now that we’re properly overbought you can put them on in size.
If you want to play the long side of the market, I think the tech side of the trade is not good risk/reward anymore.
If you’re looking for a decent trade, probably energy and finance. Look for momentum to pick up in oil services like OII
Also you can probably chase GS to the upside as well.
The other trade that makes sense here is to look at some of these names that see big moves on earnings and start scaling into calendars.
GOOGL and NFLX are good candidates.
BA is another one.
Here’sthe trade strategy: scale into calendars because you expect sideways action after earnings and implied volatility is in the gutter. You want to do either Nov/Dec or Dec/Jan calendars depending on how fast you want the time decay to come in.
I’ll have more later on in the week, happy trading everyone!October 26, 2015 at 7:52 am #4454
I have done a little analysis on GOOGL, having had the same thoughts on scale calendars on friday. This is a comparison between googl and vxgo
It’s showing that it takes a couple of days for the volatility to bottom out.
The proper entry probably depend on the calendar being a 30 DTE on the short side, or a 60 DTE.
You probably wanna be a little early on the 30 DTE, and on the other hand wait a few days for the proper entry on the 60 DTE.
This is the risk profile for the 30 DTE
Max risk: 685
Max reward: 1084
Max risk: 495
Max reward: 1256
First trade is more heavier in term of capital, and requires less time to get out (assuming googl stays at 720, you collect 300 in 12 trading days).
Not really sure what’s the best strategy to deploy. Worst case scenario: you need to add a round of calendar when you have 10 DTE, which i think will basically screw up the trade cause there won’t be enough credit to collect.
Thoughts?October 26, 2015 at 4:31 pm #4461
Took the googl 730 nov dec call calendar at 7.12. I’ll post here any update on the position. BE brackets are 705 and 755.October 30, 2015 at 8:24 am #4463
With the nasdaq tagging a new 52 week high premarket, and googl currently at 745, i’m expecting a second tier to be added. Being a 30DTE calendar, i’m gonna probably do it today, regardless of the price action, cause the play is mostly a theta play, and waiting till monday might be a mistake.
I’m looking to add a 760 calendar on googl; the 750 would make more sense, but the 760 helps to widen out the break even brackets of the trade.
This is the trade with a 760 nov dec calendar:
This is the trade with the 750 calendar
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