Wednesday, January 09, 2008

A bounce

The Qs continued the sell down today on decreasing volume, culminating at 14:00 in a low volume swoon towards S1 and then changed direction on a (suspicious) low volume reversal which held for the remainder of the day. The action got a little weird around 13:45 when option activity all but dried up as traders waited for the plunge to and possibly through S1. The opportunity to scalp the bottom lasted about 90 seconds at 14:10 before the market makers opened the normal .01 spread to .02 and .03, apparently not wanting to give anything away and at the same time hedge their positions. That spread opening provided a good tell that the trend was about to change.
I flip flopped in and out of a couple short puts plays early on. . .then went flat into the afternoon until 14:15 when I sold some OTM puts. With 10 days until expiration a lot can happen, but at the close I was up 50% on the position so I've got some margin to play with as decay wears away. Friday is typically a high volume day for rollovers and premium decay should begin to accelerate significantly at that time. I typically load up on short puts going into the Friday afternoon prior to expiration week just to capture the premium decay. If the Qs hold together till then I will take a flyer on that game, but I'm still a bit wary of the Qs based on the 3LRs studies posted over the past 2 days.

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