Fedspeak and the Aftermath

October 31, 2007

For those of you who don’t already know the Fed decided to lower rates by a quarter-point to 4.50%. It was the second straight reduction this year. As expected, immediately following the announcement the market experienced several violent whipsaws only to finish the trading day substantially higher. The S&P (SPY), Dow (DIA) and Nasdaq 100 (QQQQ) finished the day higher 1.0%, 0.8%, and 1.4%, respectively.

Now What?

Did you notice how the bond market responded to the announcement? The benchmark 10-year Treasury note spiked after the news and advanced over 2% by the end of the trading day and 4.4% since late Tuesday.

Historically, when we see the S&P up over 0.5% and the 10-year Treasury notes up over 1% following a Fed announcement the market has a tendency to struggle over the short-term (1-5) days.

Couple the aforementioned historical tendency with the benchmarks we follow (found below) nearing an overbought territory and you can see why the market could struggle to advance over the next few trading days.

SPY Diagonal LEAPS Strategy

The strategy continues to make strides up $1,681 or 8.4% in our test account. The fact that we begin each expiration cycle long one LEAP allows the strategy to take advantage on any significant upside moves. We begin the cycle long one LEAP contract because we want a hedge just in case the market rallies significantly over the course of the expiration cycle. I would like to see some bumpy roads ahead so that we can see just how the strategy reacts during adverse conditions..

Overbought/Oversold for October 30, 2007

S&P (SPY) - 65.2 (neutral)

Russell 2000 (IWM) - 60.5 (neutral)

Dow (DIA) - 63.8 (neutral)

Nasdaq 100 (QQQQ) - 73.5 (neutral)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 3 stock options strategies in our investment newsletter, the ETF Extremes, SPX Short Iron Condor and SPY Diagonal LEAP.

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under SPY LEAPS Strategy ·

Sitting On Hands

October 30, 2007

Traders locked in a few profits today as tomorrow brings the highly anticipated Fed announcement. Expect to see price action fluctuate for a brief period following the opening bell and then settle into a tight trading range as the market moves closer to the fed release.

Once the FOMC statement is released expect to see a whipsaw effect occur. Many novice traders get caught in the wild price action that follows a release quickly realizing that “sitting on hands” was a much better approach. The risk/reward is just too high for me in this type of situation. With the plethora of high probability set-ups that will present themselves over time why would I risk my money on a straight gamble. I prefer to wait until the market has worked through the kinks and then I might risk my capital if a good opportunity presents itself.

Remember, “sitting on hands”, like long or short, is a position. Realize this and take advantage of all it has to offer.

Overbought/Oversold for October 30, 2007

S&P (SPY) - 51.2 (neutral)

Russell 2000 (IWM) - 46.2 (neutral)

Dow (DIA) - 51.2 (neutral)

Nasdaq 100 (QQQQ) - 63.5 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under Crowder's Daily Market Commentary ·

Seasonally Bullish

October 29, 2007

Before I move into today’s price action and what the next few trading days look like I would like to reiterate the overly bullish seasonal conditions that the market has entered.

The last three days of October and the first three trading days of November are overwhelmingly bullish. Going back over the entire history of SPY (12 years), not once did the aforementioned time frame finish lower.

Furthermore, the Stock Trader’s Almanac has the six days marked with a bull symbol. This signifies favorable seasonal conditions with the S&P finishing the days higher 66.4%, 81.0%, 61.9%, 71.4%, 66.7%, and 61.9%. It is the longest string of “bull symbol’ days in the must-have reference.

The market traded in a fairly tight range today and will most likely continue this type of price action until the Fed rate announcement late Wednesday. Once the rate announcement is released I expect to see volatility pick back up. Obvious right? The best case scenario, for my trading style, would be a sharp move to the upside that pushes the current overbought/oversold levels into “overbought” to “very overbought” territory. If price action plays out similar to the aforementioned then I expect to see the probability lean towards the short-term bearish camp later this week. Until then I am still patiently waiting on the sidelines.

Ahh yes, the New SPY Diagonal LEAPS strategy that we created a mere five weeks ago is up 6.97%. Over the same period the underlying SPY is up only 1.1%. We continue to follow the strategy in the community blog and in greater detail for our paid subscribers in the newsletter. Interest in the new strategy has been overwhelming and may cause us to limit the number of subscriptions that we allow. If all goes well, we will introduce the strategy for auto-trade over the next few expiration cycles.

Overbought/Oversold for October 29, 2007

S&P (SPY) - 65.3 (neutral)

Russell 2000 (IWM) - 56.7 (neutral)

Dow (DIA) - 64.4 (neutral)

Nasdaq 100 (QQQQ) - 61.6 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under SPY LEAPS Strategy ·

Sunday Links - October 28, 2007 Edition - The Week Ahead

October 28, 2007

Sunday Links - October 28, 2007 Edition - The Week Ahead

Random Thoughts

Bespoke provides Key Earnings Reports for the week ahead
Srividhya Sivakuma dabbles in derivatives - strategies to hedge equity risk
Schaeffer’s gives the public another wonderful tool - put/call open interest
Adam is up to his old VIX Tricks again - A must read!
Options are growing socially?

Strategy of the Week

Thinkorswim gives us a lesson on - all things vertical.

Essential Tools

Check out the Free position simulator offered by our helpful friends at the Options Industry Council (under the trading tools tab)

Food For Thought

Another must read by Trader Mike - Position Sizing

Please do not hesitate to email us with any comments or questions. I hope all of you have a wonderfully prosperous week of trading.

Andrew Crowder, Chief Options Strategist, www.crowderinvestments.com,

Filed Under Crowder's Daily Market Commentary ·

Seasonal Phenomenon Upon Us - New “Weekend Report” Sunday!

October 26, 2007

As I stated yesterday, a notable seasonal phenomenon is upon us. The last three days of October and the first three trading days of November are overwhelmingly bullish. Going back over the enitre history of SPY (12 years), not once did the aforementioned time frame finish lower

I will be back later this weekend (most likely Sunday) with a weekend report of sorts. I want to use it as a reflection of the prior week and the trading week ahead. Notable economic reports, earnings reports, fedspeak, technical signals, etc. and to talk stock options.

Overbought/Oversold for October 26, 2007

S&P (SPY) - 61.3 (neutral)

Russell 2000 (IWM) - 57.6 (neutral)

Dow (DIA) - 56.9 (neutral)

Nasdaq 100 (QQQQ) - 59.0 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under Crowder's Daily Market Commentary ·

Strong Seasonal Winds Blowing In

October 25, 2007

With only four trading days left in October will we see the historically bullish seasonality that occurs during the last three days of October and the first three trading days of November. Going back over the entire history (12 years) of SPY (S&P) not once did the aforementioned timeframe finish lower.

Given the recent price action and the bulls ability to keep the benchmark S&P above its 50-day moving-average I think the seasonal winds could be blowing at our backs again this time around. I would prefer to see another heavy sell-off tomorrow so that the major indices we follow reach an ”oversold” to “very oversold” condition. If this price action occurs then we could see a signal in our beloved, yet admittedly frustrating (at least for those who want action) ETF Extremes strategy.

Our Iron Condor trade looks great as we end the first week of the November expiration cycle and the SPY Diagonal LEAPS strategy contniues to blaze forward with an exceptional 4.7% gain during its first five weeks of existence. We will continue to follow the basics of the strategy in the community blog and a more in-depth look in our Monthly and Expiration Reports (Subscriber’s Only).

Our delta sits at 164, gamma -18 and theta 21. Remember we always start out each expration cycle long one LEAP contract so we expect to see an overall delta position similar to the current reading of 164.

Overbought/Oversold for October 25, 2007

S&P (SPY) - 43.3 (neutral)

Russell 2000 (IWM) - 39.9 (neutral)

Dow (DIA) - 42.6 (neutral)

Nasdaq 100 (QQQQ) - 45.5 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under SPY LEAPS Strategy ·

Chop Chop

October 24, 2007

What a day! Heavy selling pressure stepped into the market early and often and the sharp decline looked like it might continue throughout the trading day. However, towards the end of the day a rumor floated through the ears of Wall Street; the Federal Reserve, scheduled to meet next week, could initiate a rate cut before the already highly anticipated meeting.

The news immediately led to an intra-day rally, which was compounded by shorts quickly covering their positions. At the close, the Dow (DIA) had pared its intra-day losses to finish the trading day flat.

The flat day led to another day of neutral readings in the benchmarks we follow. As far as short-term edges go, there isn’t one. Of course this could quickly change over the next few sessions. But for now, we will patiently wait on the sidelines for an extreme, allowing our theta-driven strategies to reap the rewards of the recent range-bound environment.

Overbought/Oversold for October 24, 2007

S&P (SPY) - 38.8 (neutral)

Russell 2000 (IWM) - 42.0 (neutral)

Dow (DIA) - 36.1 (neutral)

Nasdaq 100 (QQQQ) - 58.0 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under Crowder's Daily Market Commentary ·

Market Neutral, Condors and Diagonals

October 23, 2007

The short-term bounce that I first spoke about late last week seems to have exhausted itself. The short-term bounce could continue, but the high risk/reward position of the trade seems to have faded as prices have risen.

The market still seems a bit heavy to me here. I know the market has performed exactly as it should have after the new-high correction, but there are a few underlying indicators that are starting to make their way to the forefront, at least over the short-term.

The Nasdaq 100 (QQQQ), which is often viewed as a leading indicator, is once again nearing a short-term overbought situation. Moreover, the upside gap in the tech-heavy QQQQ also went unclosed. Couple the two aforementioned situations and I think you can see where I am going: the probability of a short-term reprieve has increased. With the market currently in a neutral state I would like to see a further push into overbought territory to allow for a better risk/reward setup, so I will be patiently waiting on the sidelines until that type of favorable setup presents itself.

I continue to be amazed with the 260 point range position in the S&P (SPX) that we were able to establish in our Iron Condor strategy. As long as the VIX chops around the 15% - 20% range I expect to see simialr wide-range (high probability) positions in the future.

The 260 point range allows for the underyling S&P (SPX) to move of roughly 8.5% to the upside or downside before our position is in jeopardy of a loss.

The second expiration cycle for the SPY Diagonal LEAPS strategy is underway and the strategy has already pushed higher $246.50 in our test account. The strategy is in its fifth week of existence and has gained approximately $960 or 4.8%.

Our November short strikes in the SPY (mentioned in Friday’s (10/19) post) sit at 150,151, and 152. The three short call positions expire in 24 days. Our long LEAPS strikes continue to be 125 and 130. Both expire in December 2009 or 787 days.

The delta is hovering around 170 with a gamma of -16 and a theta of 22. For the most part we want to remain long in the strategy, which is why we go into the beginning of each expiration cycle long one LEAP contract. What does this mean? We carry 5 long LEAPS contracts and sell four against them. This allows for some upside protection and gives us the ability to make adjustments easier when the indice inevitably moves lower. Hopefully we will see the market vacillate widely over the next four weeks so that we can see how the strategy reacts under adverse conditions.

Overbought/Oversold for October 23, 2007

S&P (SPY) - 40.8 (neutral)

Russell 2000 (IWM) - 47.1 (neutral)

Dow (DIA) - 34.9 (neutral)

Nasdaq 100 (QQQQ) - 66.2 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under SPY LEAPS Strategy ·

November Expiration Cycle Begins

October 22, 2007

The November options expiration cycle stared with a bang today. The sharp decilne last week carried over into this week as the market opened the day substantially lower. Buyers stepped in immediately and the gap to the downside was filled within a few hours of the opening bell. Two of the major indices we follow (SPY and DIA) are still in an oversold state so I would expect to see some follow through to the short-term bounce tomorrow.

We also established our November position in the Iron Condor strategy with an enormous 260 point range. Last month we brought in the same amount of credit with only a 200 point range. Thanks to Mr. Volatility’s recent jump we were able to extend the range to 260 points over the next four weeks for the same credit. The VIX moved lower as the day progressed so we were fortunate to lock in such a large range for the November cycle. The underlying SPX would have to move over 8.5% over the next four weeks before our trade was in jeopardy of taking a loss.

Overbought/Oversold for October 22, 2007

S&P (SPY) - 27.3 (oversold)

Russell 2000 (IWM) - 40.2 (neutral)

Dow (DIA) - 20.7 (oversold)

Nasdaq 100 (QQQQ) - 51.2 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under Crowder's Daily Market Commentary ·

Sell In May Revisited and Indices In A Very Oversold State

October 19, 2007

Before I delve into the options strategies we follow and how the performed during the October cycle I would like to touch on a post that I write back in late April/early May of this year.

On 5/3 I first spoke about the old Wall Street adage “Sell in May and go away. As many of my loyal readers know, I mentioned it several more times over the course of the next few months.

On 5/4, when the market officially moves into the aforementioned adage, the S&P (SPY) was trading at $150.75. Today the S&P (SPY), closed at $149.67 lower -$1.08 or -0.7% since the ”sell in May” period began. Once again, the seasonally flat period between May-October proves it merit.

Okay, back to today’s market action. Whew! More than a handful of options strategists were hurt by today’s price action. Our strategies actually had a wonderful expiration period. Our Iron Condor strategyamde 7.9%, the ETF Extremes held flat (no signals), and the New SPY Diagonal LEAPS strategy finished today (after rolling our short positions into November) up $670 or 3.4% for the October expiration cycle. Today’s move certainly made its mark on the strategy, but when the S&P falls sharply, we should expect to see losses.

As I mentioned above we rolled our short positions this afternoon. We made the following trades:

Sell to open 1 SPY Nov07 151 calls

Buy to close 1 SPY Oct07 151 calls for a credit of $2.86 or $286 (calendar spread)

Sell to open 1 SPY Nov07 151 calls

Buy to close 1 SPY Oct07 152 calls for a credit of $3.58 or $358

Sell to open 1 SPY Nov07 152 calls

Buy to close 1 SPY Oct07 152 calls for a credit of $2.96 or $296

Sell to open 1 SPY Nov07 150 calls

Buy to close 1 SPY Oct07 154 calls for $4.48 or $448

Again, our hope is that after we educate you on how this strategy works we can make the strategy live in a month or so. We wanted to try something new on the blog. Introducing a new strategy for the public to learn and follow made sense. Hopefully, we can educate you on the advantages/disadvantages of the strategy over the next month or so.

After selling our new November positions, our delta is 198.44. This is a bit higher than we like. Remember we hold 5 LEAP positions, leaving the strategy long one LEAP contract. This allows us to make adjustments if necessary.

Now what of the underlying SPY contniues the recent trend lower. Well, what we typically wait for is a move ranging from 6-8% move up/down away from our strikes held, in our case 150,151,and 152. That would mean that the S&P would have to move to the low 140’s before we need to make any adjustments. If our timing models call for a intermediate-term bearsih period, which is basically a move below the 200-day moving average plus a couple other indicators we follow, we could adjust the strategy to be delta negative or at least cloer to delta neutral. As we stated earlier we are currently long delta so we are slightly exposed to downside price action.

Remember, the key is theta or time decay. As long as the underlying SPY does not move to the 125-130 level, which would force us to adjust our LEAPS, the strategy should prosper. However, sharp moves like today, or whipsaw effects, can often be detrimental to the strategy. For the strategies sake and for educational purposes, I would like to see the S&P move lower throughout the next expiration period so that you get to see firsthand how the strategy reacts. As always I will be covering the strategy in more detail in the Expiration Report (out early Sunday, for subscribers only).

The price action moved most of the indices we follow into a “very oversold” state, just what we wanted. In most cases, the risk/reward is high for a short-term bounce higher and given the seasonal tendencies we mentioned yesterday (trading day after October expiration higher over the last 10 years) we could see just that. However, holding over the weekend is not something anyone wants to do (at least by looking at the tape at the closing bell).

We will establish another Iron Condor position in the strategy early next week so if you wish to get in make sure that you sign-up before Sunday evening. Remember space is limited. With the VIX spiking higher Friday we should be able to increase our range from an already wide 200 points to possibly 260. We want to let the probability of the trade work for us so we will most likely go after a 6%-8% gain over the next four weeks. We wil ltalk about this further in the Expiration Report.

There is just so much to talk about tonight, I could write volumes, but I think my subscribers should be privy to that info so I will save my thoughts. As always please do not hesitate to email me with any questions about the new LEAPS strategy or anything options-related. I will try to do my best to answer accordingly.

Overbought/Oversold for October 18, 2007

S&P (SPY) - 16.5 (very oversold)

Russell 2000 (IWM) - 16.8 (very oversold)

Dow (DIA) - 12.5 (very oversold)

Nasdaq 100 (QQQQ) - 38.8 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under SPY LEAPS Strategy ·