Trade Setups, 9-1

• stevenplace
• September 1st, 2009

GLD

Trade Rationale: Gold has been chopping and winding up all summer for a larger move. The chop has been fatiguing traders but everyone is watching this triangle pattern for confirmation of a move. We are also seeing a bit of a base put in in GVZ, which measures the demand for GLD options. We want to be long vega (volatility).

Trade Strategy: We’re going to implement two separate strategies for the different portfolios. For the 40k, we will be buying an Oct 92 Straddle for 515 or better. I will do one straddle initially and then add another on the confirmation of a break either way. For the 7500 we can’t afford this, so we will make a directional bet with the trend and get some +vol exposure by this trade: BUY +5 VERTICAL GLD 100 DEC 09 95/96 CALL @.30 LMT. This trade assumes that we will be above 95.30 by December expiration, which is reasonable given the trend and potential breakout.

Risk Management: I’m going to be playing this one by ear on GLD. If we make new lows on the year for GVZ then I’ll exit, and if we don’t see any decent movement in the next 2 wks then I’m out. We’ll get hit on the time decay but the vega and delta/gamma moves should make up for it.

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OIH

Trade Rationale: After a large summer corrective move, OIH has slowly climbed up just below previous resistance at 112. We’ve also got an upside channel breakout. We’re selling off on oil and equity weakness, and I’m assuming that the most recent swing lows are going to hold as support (green line).

Trade Strategy: Since I think that price is going to move slower than what the options are pricing in, I want to be an options seller. In order to limit my risk, I will be getting into a bull put spread. SELL -1 VERTICAL OIH 100 OCT 09 100/95 PUT @1.50 LMT. The market’s dow

n a little bit at the open so you can get a better fill. I want to do 1 for the 7500 and 3 for the 40K, with the ability to add a little more later. I also chose Octs b/c of the low initial delta so if we’re wrong we can get out fast.

Risk Management: This trade is on the assumption that we will hold the most recent swing lows. If it breaks below that, our thesis is broken and we need to exit the trade. So I will put a stop loss at 97.40. That gives us a risk of ~100 per spread.

JPM

Trade Rationale: This is a short term bullish continuation pattern. After a week and a half of a range, it looks like it could breakout here. The selloff below 4250 was met with extreme buying at the open so that’s bullish. I want to be long on a breakout.

Trade Strategy: I will be playing the Oct 45 Calls. No more than 5 contracts for the 40k, but position size will be up to you. I’m looking for an initial runup past that green breakout area to start with 2 contracts, then I’ll add 3 more on a break of 43.80. If we don’t hold above that level by the close I will exit out half the position or roll into bull call spreads.

Risk Management: Initial stop will be 42.95. If we don’t hold above that level by the close I will exit out half the position or roll into bull call spreads.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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