My Analysis of Gold and the Euro

• Posted by: stevenplace, February 8th, 2010 at 12:15 pm
• Comments: 0

These two videos were made at times when I felt an indepth analysis was needed on a larger timeframe. The GLD video was made mid-december, and it’s nice to see that the technical picture I’ve laid out in GLD has worked out (so far). The second video has my more recent analysis of the EUR/USD, and we’re getting into the level in which I feel we’re tagging a bounce. The next few weeks will tell me whether my crystal ball is still working.

GLD Analysis

EUR/USD Analysis

January Results

• Posted by: stevenplace, February 8th, 2010 at 12:05 pm
• Comments: 0

This post is slightly delayed, I’m going to unlock the posts related to these trades to show you my rationale. Trades are in order of when they were opened.

Stocktwits Brunch, February 7th

• Posted by: stevenplace, February 7th, 2010 at 5:24 pm
• Comments: 0

Market Wrap, 2-1

• Posted by: stevenplace, February 1st, 2010 at 8:53 pm
• Comments: 0

The Expected Range for February

• Posted by: stevenplace, February 1st, 2010 at 11:26 am
• Comments: 0

On my latest stocktwits brunch, I pulled up a spreadsheet that listed the current market volatility readings over several asset classes. These readings can then be reverse engineered to show what sort of expected move we may see within the next month. I feel that this is a very useful refresher going into a new month or opex cycle as it gives you a feel for what investors are expecting.

Do note that these levels are not set in stone, and there is a little voodoo behind it. First, the implied volatility readings are based on some calculations relating to the supply and demand of options– the perceived risk of future movement is seen through option premiums, and we work backwards from there to get our readings.

The calculation is relatively simple. You divide the reading by the square root of 12 (12 months in a year) to get your percentage– you then divide that percentage in half to get the expected move up/down– that’s from a normal distribution perspective.

You then take that percentage and add/subtract it from the current price of the underlying– and that gives you the expected range for the month of Febrary. If you think that the range is going to be large, you should be buying volatility, and selling vol if your perception of risk is less than what the current market is telling you.

This is a statistic, and volatility measures are related to the standard deviation of price changes– so these levels are right about 2/3 of the time.

Option Strategies to Protect Your Portfolio

• Posted by: stevenplace, January 27th, 2010 at 2:27 pm
• Comments: 0

Tickers: spx, spy, vix

AAPL Earnings Trade Analysis

• Posted by: stevenplace, January 26th, 2010 at 11:43 am
• Comments: 0

This has been an eventful earnings season so far for IWO– we’ve taken a couple trades in GOOG (win), ISRG (scratch), and GS (loss, still open). I wanted to go ahead and breakdown what I saw with $AAPL going in.

First, on a purely sentimental observation, there was entirely too much anticipatory noise coming into this event. I observed froth from both fanboys and haters alike, so that led me to believe that everyone was expecting some huge move due to the report, both up and down.

Shazam.

Next, we have to consider the overall volatility environment. The rising tide in the $VIX lifts all premiums, so it definitely helped when considering what sort of trade to take.

The VIX closed friday above the 3 standard deviation bollinger band– that’s a pretty good time to look to sell some premium, and it has been on the last 4 occasions (caution: hindsight bias)!

The next data point to check out is the price action in $AAPL. While the longer term trend is up, the intermediate term trend is quite neutral.

Where's the Trend?

The name has essentially been in a range since last October. We did have a “breakout”, but it failed quickly– and then we were back to our range again. My thesis was that we were not going to break support or resistance through $AAPL earnings.

Next we have the current implied volatility. IV is the premium that traders are willing to pay to protect their assets– this premium is modeled based on the expected move over a specific time period. But when an event comes up, the premium rises as traders are concerned about a strong move either way. If we think that premium is high enough to assume the risk, then we can be net sellers.

The red line is the implied volatility 30 days out. The large spike up in IV takes us to levels that we hadn’t seen since April. The combination of the strong selloff and earnings anticipation caused the premiums to skyrocket.

Also, take a look at the implied volatility skew. In some option pricing models, the assumption is made that the implied volatility across the options board should remain constant– that is not the case in reality. So the AAPL chain saw a nice volatility “smile,” as higher (relative) premiums were being paid on options whose strikes were far away from the current price of AAPL.

So with that volatility environment, one of the better plays to use is an Iron Condor. That is when you sell a call and a put that are OTM (out of the money), and then you buy the “wings”– a call and a put that are even further OTM. This is a spread that has limited risk, limited reward, and you make money within a certain range.

The risk profile shows us exactly how this works. The trade was to sell -2 Iron Condors, selling the 230 Call and 190 put, and buying the 240 call and 180 put, for a total credit of 3.20 per condor. This was for a model portfolio of $40,000– that’s what decides our position size.

So that means we are taking in a credit of $640 to take on a risk of 1360– we are willing to risk more than we make becuase we make money in a very wide range– our breakeven by February expiration is between 186 and 223– well within the range.

So this trade has turned out fairly well– assuming that AAPL stays within that range for the next few weeks, the time decay should make it a more profitable position.

We’re looking to line up a few more earnings trades, if you want in on the action, join up with IWO.

Tickers: aapl

Great Trade from an IWO Subscriber

• Posted by: stevenplace, January 11th, 2010 at 3:38 pm
• Comments: 0

With the recent pullback in some energy names one of my subscribers took profits on a name that was put out nearly a month ago.

CHK was a trade idea that I put out there that I completely botched. My stop loss was way to tight given the volatility, but some of my subscribers kept their stops a little wider– and they were rewarded with a nice gap up the following day.

Well if you haven’t seen a chart of CHK lately, here’s that occurred:

One of the great things about options is that once your contract goes in the money, it starts to mimic stock and you no longer have any risk of time decay. You can then become more patient and let the uptrend continue.

@krishope’s patience paid off, and I got this tweet this morning:

Great to see traders taking advantage of my service! If you’re interested, you can join here.

Tickers: chk

Happy Hour Review

• Posted by: stevenplace, January 9th, 2010 at 4:38 pm
• Comments: 0

A New Chart Pattern to Watch For

• Posted by: stevenplace, January 8th, 2010 at 2:16 pm
• Comments: 0

I don’t know if there is a name for this pattern, but I’ve been seeing it a lot lately. I guess we can call it failed-breakout-range-base-then-rip-higher. It’s sort of the cousin of the failed breakdown patterns I’ve been seeing recently, but the supply/demand structure is different.

Essentially, the stock or etf goes higher on momentum, finds sellers, and we see a quick reversal. Then the stock bases out for a few weeks to a month, and forms a channel. It then breaks out and we see a retest of those recent momentum highs. It has been a reliable pattern recently.

Take for example CTXS:

So here are the steps:

1. The stock breaks out into fresh highs above 36. The momentum takes it to about 43.50
2. It finds sellers at that price and makes a quick round trip back to previous resistance.
3. The stock then finds a range between about 39.50 and 37.50 for a month. This is the key– I think that shorts get more interested and there is a very clear stop loss above 40.
4. The stock breaks 40 and the fresh stops are run and we see new momentum take us to retest the levels at 43.50

Watch for this pattern, especially if we get any strong pullback in momentum-based names.

This pattern is developing with FDX but it hasn’t broken out, I’ll be watching to see if we can retest those levels:

If we see a breakout above 85 and the 20 DMA, we should see a gap fill and a potential run to 93.

Tickers: ctxs, fdx