Investing, Options Trading and Everything Money
I told you there was a podcast coming!
Well, this isn’t quite a podcast, to be honest. It was supposed to be a quick market recap. But then some of my listeners started asking some question.
So the general outline is…
Here’s that:
I don’t do this too often, but here are some of my favorite swing trade potential set-ups based on and price and money flow today.
Bullish Swing Potential
$FB
$AMZN
$GOOGL
$DAL
$EFX
$FDX
$ISRG
$LOW
$MDT
$PCG
$PSA
$TSN
$TXT
Bearish Swing Potential
$COP
$CVS
$CXO
$FOXA
$OXY
$PEP
$TGT
Some stocks to keep an eye on as well here. $BABA looks ripe for a pop soon.
In markets with this sort of volatility, don’t pick a side heavily. By that I mean don’t put a large chunk of change in a directional trade…don’t trade like it’s the apocalypse throwing tons of money into puts and other ‘hedges’ unless you’re not holding many of those as overnights.
I like to balance my bullish options tendencies with equity holdings in $DOG $SQQQ $TVIX $SDS & $YANG – but I stay dynamically with them. I also have some in my port, but the amount varies with market conditions. Dynamic hedging I call it.
I believe we see a bullish bounce tomorrow, in the morning at least.
This is the last week of the quarter so some of the volatility we’re seeing is portfolio rebalancing by some of the ‘big boys’ as well as profit-taking. A common way to do that rebalancing is to take your profits from the stock, then buy calls while your sell pressure is sending it down, then bid it back up and exercise the calls when they’re ITM. Based on that strategy $BABA is a must watch.
Happy and safe trading all.
Cheers,
-dros
Well… I don’t know. Anyone who claims to know with precision is probably guessing and pulling their claims out of their asses.
Here’s what I see…
Option flow is pointing towards a choppy week here, we may easily end up on Friday where we started at close on Monday.
The same options flow is pointing towards upside after this weekly options expiration coming Friday ( April 13th, 2018).
The options flow I’ve been seeing is implicative of downside towards the end of the week.
Ahh..these markets eh?
For some of the newer traders reading this, this may very well be the first time you’ve experienced moderate volatility.
Yes. I said moderate.
As you can see, volatility after 2009 (well o8 technically, aka Q.E.) has been pretty tightly based around $10.00.
So yes, quite moderate. Yet, while we’ve broken some of the 2000 levels… (think tech bubble)…this time it’s different.
Yeah. most people say that it’s never different…boom-bust…boom-bust…and continued. My fundamental response is, yes, that’s how markets work. Boom-bust. But allow me to introduce a quick clip from a great movie (Margin Call) to speak for me and you in that respect.
The futures are slightly in the green territory as of now…but they’re fairly flat. [S&P +3.00 Nasdaq +6.00 Dow +59.00]
As for the trading the market today…be careful with monthly options expiring tomorrow. Typically, to play on retail sentiment, they’ll drive the market up at open, let it fade and idle for a while, then start buying to build bullish sentiment into the close. That might not happen today, but it’s something to watch for.
If you have any short-dated bullish options positions, I’d consider taking some profit off if the day goes as stated above…let’s wait and see.
My favorite options flow from yesterday include:
It’s been a bumpy two weeks for the indices. A few days have seen massive dips and recoveries. One saw a 300+ move in the dow in the matter of a few hours.
A fair amount of newer traders haven’t traded high volatility market situations like this.
It panics them. It makes them overtrade as they try to recoup losses…usually resulting in more losses.
If the above applies to you, calm down and slow down your trading a bit…
Take a step back sometimes. Think of it like this…if you had bought 1 share of $QQQ on February 1st and done nothing with it, you’d be breakeven as of today. If you had bought one on February 5th as the market seemed to be recovering and held through the dip, you’d be up a fair amount.
This is a new type of post that I will try to make each week (usually weekends, but sometimes during the week) where I share some stocks to watch, or at least that I’ll be watching based on recent Unusual Options Activity as well as some other market factors.
For full disclosure, I will let you know which ones I have positions in already. The names on this list that I don’t have positions in are names that I’ll be eyeing for opening positions in.
Anyone who has followed my stream on StockTwits.Com knows that I’m a big fan of unusual options activity (UOA). A lot of my posts on StockTwits, Twitter and my trading room are regarding UOA. A lot of my trades are based around it in fact. However, I learned the hard way on a few occasions by not understanding the reasoning behind some of the activity and indeed, blindly following it. I hope this post saves at least one person from being tricked by the aspects of UOA used for market manipulation or reasons you aren’t even thinking of
.
I should probably start with a quick definitely of unusual options activity: it’s when options are opened on a given day at a higher volume that they have not been traded at for a set amount of time.
I use several tools to find unusual options activity, my favorite being TDAmeritrade’s Think or Swim Platform, as well as trade-alert, and WallStJesus. Their services are excellent. I use them as shortcuts to find option contracts with volume that exceeds open interest during the trading day. If the volume of a trade is greater than the open interest, it implies that the position was opening.
Other factors include “sweepers” (buyers of options that buy everything available across multiple exchanges) and if the trade is placed on the bid-side or the ask-side. Hitting the bid-side (having the trade executed at the “bid”) often implies the selling of an option and filling a trade on the ask-side often implies buying.
Because there’s trickery in all of this. Warren Buffett, despite his use of them (his smart use of them), has called financial derivatives like options to be weapons of mass destruction.I’ve seen the social media financial outlets explode with comments when thousands of contracts hit the tape vs. the open interest, with those contracts set to expire that same week.
Suddenly everyone gets super bullish regarding the stock. Why else would someone be spending so much money buying so many calls (or puts) with such short expiries? Surely they know something, right?
Probably Not.
Those orders are generally hedges. If you are short a stock (an actual stock short, not a Put) buying ITM (in the money) or ATM (at the money) calls at a price lower than you shorted at is a hedge. What it means for that trader, if the stock runs up then they’d be able to cover their short position for less than they otherwise would’ve been able to
For example, if you were to short (sell to open) $AAPL stock, you would essentially make a penny for each share you shorted of $AAPL. Let’s say you shorted $AAPL at $140 then it started to spike up, or the market conditions were such that $AAPL was likely to move up. If you bought $135 strike $AAPL Calls, you would still be able to “cover” your short position @ $135 rather than say the $150s where Apple is trading right now. Remember that options can be exercised, meaning if you own the $135 Calls, even if $AAPL went to a $1,000, you would still have the right to buy 100 shares @ $135 each for every contract/call you owned of Apple.
I see retail traders get tricked into believing such purchases are super bullish nearly every day, when in fact they’re somewhat of the opposite.
Other ways of ‘tricking’ retail investors with unusual options activity exist as well. In the first “Wall Street” Movie, there’s a scene where Gordon Gecko tells Buddy Fox to buy a ton of calls then bid up a stock…virtually guaranteeing that the calls will be worth more. This sort of things goes on every day, and traders are suckered in by it all the time, despite Oliver Stone tipping us off to it in 1987. Trust me, this sort of stuff is still very commonplace in the market.
Then there’s the call or put sweepers who buy enormous amounts of options RIGHT before analyst upgrades or downgrades on a stock. If you think this to be coincidence, I wish I had your innocence. The stock market is manipulated by the people with the money to be able to manipulate it. If it weren’t, stocks would be less volatile than bonds, and ‘options’ and ‘trading’ would likely not even exist.
There’s plenty of other tricks out there which I’ll get into as this blog develops. This post is merely intended to inform you that not all UOA is the sort of thing to be followed blindly. In fact, no trade should be followed blindly despite the credentials of the trader posting the trade. It’s something I tell my followers every day; you have no idea why I’m taking on a trade and unless you do…don’t take it on until you do. You’re always welcome to ask me why I am as well.
Cheers,
Rishesh
“androsForm”
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