Thursday, October 16, 2008

What a difference a day makes

With today's little 800 point swing and the VIX hitting 81 and closing at 67, we have recovered from new lows, shown volume above both the 10 and 20 DMSAs in 3 of our 4 ETF basket (XLF is above the 20, and at the 10), and seen an upslope swing develop in the technicals.
The Qs chart is incorrect . . Telechart data is not updating.
The Qs closed at 32.24, and are now poised at the lower channel band of the daily LR30. While the RSI 2 remains downslope in all 4 ETFs, this could reverse on a small pullback Friday. As some of my previous studies have demonstrated, Fridays have generally fared better as days to sell rather than days to buy. Whether expiration dynamics will muddy those waters remains to be seen, but all things being equal we might see a ncie rally develop next week.
For the risk adverse, some interesting buy/write plays.
GE, for example. With GE at 19.87, the Nov 20 call pays 1.80 or 9%. The 17.50s pay 3.45 or 5% with almost $2.50 in insurance.
Lots of other similar situations.
Hey! If Buffett liked GE at 22.25, shouldn't I love it at $20????

4 comments:

bill said...

Hi BZB,

regular reader of your blog , appreciate your effort in sharing your thoughts. I have read and reread lot of your post and trying to figure out which will work out best for mu situation. I cant day trade due to full time job and not good at tick trading.

If you have to name a few strategy which can have a hold time on 1 to 4 days which one will it be. My plans is to trade option when VIX come little closer to earth.

I have seen some of your study has average winning bar less than 4 and i am going to research.

I plan to use options on qqqq and iwm exclusively. with 30k account risking/buying less than 3k worth of options should be fair risk mgmt.

If you can guide/suggest in suggesting which ones would be good fit i can do some study.

I am ready your use of weekly pivots and see how you are trying to predict moves based on it, but am trying to find out are you also taking some butterfly and other option strategies to genearte some income. If yes kindly detail. I understand this are volatile markets and may be not be best suited for condors and butterfly.

thanks
bill

bzbtrader said...

This is not the environemnt for butterflies or condors IMHO. I like your money management approach but am unclear about your access to a platform during the day. Do you place orders after the close? Thta won't work for options. And placing orders after hours subjects you to the whim of market makers at the open, unless you use limit orders(always recommended anyway). Not beng able to monitor your positions during the day in these markets and trying to finesse trades with holding times of 1-4 days involves a lot of risk exposure. If nothing else recently the markets have been consistently inconsistent, and as I have tried to stress in many posts, technical analysis ain't working that well right now unless you're a day trader. Unfortunately, there are no easy answers and I'll try to address that matter in upcoming posts. Thanks for checking in.

bill said...

thanks for the reply.
i can trade till 10 am est and between 2 to 4 pm est.

I dont like day trading as i am not good at that and its just too stressfull for me.

once VIX is back at 20 levels i can trade options with 1 to 4 day hold. I am looking at various studies which you have and was wondering to reconcile and create a log sort of. so latter this can help me.I will also back test and see how option trading would have done it.

when you plan to go for butterfly for income,how far do you buy whenever you get a chance please run an example of a trade you would have taken.

once again thanks
bill

bzbtrader said...

Bill,
I think it might be quite a while till we see VIX 20 again. As I mentioned, now is not a good time for butterflies, which are really mean reversion plays. I look 3-5 weeks out for butterflies when I see a high probability mean reversion range. With the VIX in the 60s, this ain't it. Given the market hours that you can trade, your best bets might be quick gap fades or overnight continuation trades. Both of these are essentially daytrades, which you don't feel comfortable with, so I'm still pondering your situation. At this point I would just advise standing back and perhaps paper trading systems like the Grand Slam, 2 High reverse and a few other short timers.