Another IWM Trade

I made another trade in the Russell 2000 (IWM) just now. Here is the trade:

I also sent out my monthly performance newsletter today so you should all look for that in your email box. If you are not signed up for my free email newsletter and wish to do so, you can sign-up on the right-hand side of the website.

Kindest,

Andy

Will Holiday and Short-term Oversold Tendencies Prevail?

I purchased a few QQQQ and IWM calls today. Here are the trades:

The gap lower this morning pushed the Nasdaq 100 (QQQQ) into a short-term oversold extreme. As I write this the RSI (2) for QQQQ has pushed to 0.12 which probability screams that a bounce is near. Combine the aforementioned with an unclosed gap and positive seasonal tendencies and you can see how Mr. Probability could side with the bulls over the short-term (1-5 days).

The trading days surrounding July 4th are historically bullish. The two trading days before and the trading days after are all bullish with three of the five days having a % of time positive in the 70% range. Of course, I typically never trade based on which way the seasonal winds are blowing. However, when the winds are blowing in my direction with a few other key indicators that I favor then I have to take notice. It can give me that extra edge in probability which is always seek as a high-probability mean-reversion trader.

If all goes well, I hope to be back with a post later this evening. If not, I might just post some thoughts to the comments section of this post. Lately, this seems to be more effective and hopefully, it will encourage all of you to to tell us all what you are trading/thinking. All comments welcome.

Another Wonderful Week for My Options Portfolio

I kind of despise using a title that sounds a bit braggart, but I am very proud of my accomplishments since My Options Portfolio was initiated back on May 8th. I always have to keep in mind that this is a marathon and not a sprint and so I need to trade accordingly. While it is nice to see the short-term gains my goal is to keep this going for a lifetime. I think my transparency speaks volumes as to my intentions. Words are one thing, but  the performance of real-life trading is another.I am not a marketing machine, I am a trader. I trade for a living and I have no problem revealing my trades to others. I love my job and hope that others will join me on my life-long journey in trading various options strategies effectively.

Anyway….

I was able to take advantage of the short-term “very oversold” extremes of the market today. Yesterday, I purchased a few IWM calls to take advantage of the short-term oversold conditions and was able to get out of the trade today for a 12.1% gain. My Options Portfolio is currently up 31.3% since it was initiated on May 8, 2010.

Here is the trade directly from my ThinkorSwim Account:

I hope all of you have a wonderful weekend. Cherish those around you!

Kindest,

Andy

Major indices back in short-term oversold territory.

Oversold

• IWM – 1.4
• QQQQ – 2.2
• DIA – 3.5
• SPY 1.5

The aforementioned are the current oversold levels of the major indices I follow. As you can see we have hit extreme levels, so I expect to see a short-term bounce over the next 1-2 days. I am currently playing IWM ( as seen in the prior post from earlier today) to take advantage of the high-probability set-up so we will soon see if Mr. Probability works in my favor. Each time IWM has hit levels this low (9/2/09, 5/7/10) we have witnessed a decent bounce in the Russell.

My Options Portfolio is currently up 30% since it was initiated back on 5/8/10 and I hope to continue the gains going forward. With a steady and disciplined approach I feel I can continue the gains, maybe not at this pace, but I never really set out to make 30% in a little over a month. Of course, I expect a few setbacks along the way, that is the nature of trading – losses occur. However, as a high-probability mean reversion trader I should be able to keep my win ratio high. As I write this the win ratio  for My Options Portfolio is 82.6% (19 out of 23 trades were winning trades). The portfolio has steadily climbed to 30% or $8,282.50.

I encourage all of you to join me on this journey through your commentary (comments section is at the bottom of each post) so that we can prosper and share ideas together. It will benefit everyone. I hope to see you in the comments section very soon.

Kindest,

Andy

New IWM Position – Old Trades Posted

First I want to post the trades from Tuesday from my Thinkorswim account.

Even with the two losses, the two trades in IWM made up for both losing trades and My Options Portfolio is now up 30.0% or $8,282.50. To check the results click here. As always I will also post the trades directly from my Thinkorswim account at the end of the month. You can also see them in the options portfolio section of the blog. Transparency is of the utmost importance.

At the beginning of the trading day, with IWM down again, my short-term technical studies are telling me that there is a high-probability of a short-term bounce in most of the major indices. Due to the aforementioned I have decided to enter into the following trade:

I will be back later this afternoon with another update (or possibly just an update in the comments section of this post). Stay tuned!

Kindest,

Andy

Out of My Positions

At the end of the day I decided to exit all of my IWM, QQQQ, and SPY puts. I came out ahead on the overall trade, but I did take a couple on the chin. After the trading day was over I had to quickly race down to beautiful Lake Champlain to sail with friends. What an amazing day!

I am up for the month of June, but not nearly as much as I was in May. Hopefully, I can make up for it over the next week or so. One thing is certain, I will not force anything (never do). I just want to take advantage of the high-probability trades as they come to fruition. Probabilities are all we have as traders.

I will actually be out all day tomorrow, but hopefully I can post the trades from today. If not, I will definitely have them on the website (directly from my TOS account) on Thursday.

Reminder to Self – All It Takes Is One

I came across a great article on the one bad trade syndrome. Recently, Slopers (Tim Knight’s Band of Followers), were privy to a real-life blow-up in which a trader essentially risked all of his trading capital on essentially one trade(disregarded the importance of position-sizing). I want to make sure that I never make the same mistake. Currently, my positions are teetering on max pain (stop-loss). My outlook remains with the pullback scenario that I have mentioned repeatedly the past few weeks – short-term bearish.

For those of you who have not been reading my posts the past several weeks, I have been reminding my loyal readers of the following:

For several weeks I have warned of the following:

June is also a Triple Witching month. Four times a year stock options, index options and index futures all expire at the same time. The performance of the overall market immediately following June’s Triple Witching has been absolutely horrible in years past. The week after has seen the Dow down 15 out of the last 17 years. Watch to see if the market is overbought going into the week following Triple Witching. If so, this could have the potential for a decent short-term fade to the downside.

Seasonality alone is (in almost every case) not a reason place a trade. However, when compared with the current state of the market at the time the seasonal tendency arrives, the probability of a successful trade can be increased tremendously. Always be aware of the market’s seasonal picture.

Check out the article - All it Takes is One Bad Trade

My array of various ETF puts are all down. If indeed post-June expiration is weak then my current positions do well. Again, I am watching for a close in the upside gap in IWM from 6/14 at the $65.00 level. Once that is reached I will most likely take my trades off the table. Of course, taking heed to the article, I will not allow my positions to go much higher from here. Most of the major market indexes are struggling with what looks like strong overhead resistance. Couple that with current short-term overbought levels and bearish seasonality and you can see why a high-probability mean reversion trader would find the current market a bit bearish (short-term).

Tires Stuck in the Mud. Bearish Looking Forward?

The market basically finished flat today. Vacillation was limited as the bulls and bears played tug-of-war all day. With that being said, I am still short-term bearish (seem to be the only one right now) due to the short-term overbought nature of the Russell 2000 (IWM) and several other ETFs I follow. I mean come, IWM has moved roughly 10% in the last seven trading days. Moreover, there is an unclosed gap in IWM at the $65.03 (from 6/14). Couple the aforementioned with upcoming seasonal bearishness and yes, I think we could see another move to the 1090-1080 level.

Again, the seasonal picture looks incredibly weak as we move into the latter part of June. Keep in mind, the market is currently overbought and extremely overbought in the very short-term. Couple that with the next 4 out of five days historically bearish and one can quickly see what is going on. Yes, there are no guarantees in trading, so all I can do is trade probabilities and as a high-probability mean reversion trader I will almost always trade a short-term overbought/oversold extreme. If it works great, if not I will manage my portfolio appropriately. Losses happen, this is just part of trading. If you remain disciplined in your risk-management approach then you have won 90% of the battle.

Kindest,

Andy

Sharp Advance Into Short-term Overbought Leads to Another IWM Trade

I did something at the close that I rarely do, I scaled down my positions. I added some more IWM puts to the mix. Scaling down can be a valid strategy, but only when it is practiced with inviolable discipline – which, unfortunately, most traders do not possess. After years of trading and knowing the consequences of scaling down I know I have the discipline to know when to call it quits on a position.

Currently, the major market indices are in a short-term overbought state – all of the RSI (2), (3) and (5). The RSI (2) has pushed into a ‘very overbought state. The last IWM hit that level was 4/23. Moreover, the S&P (/ES) has pushed up against strong overhead resistance (1105-1110 area) while the Russell 2000 (IWM) left a gap unclosed at the $65.03 level.The underlying ETF closed the day at $66.99. All of these factors plus quite a few more have left me with a short-term bearish stance. My hope is that we trade lower tomorrow right at the opening bell, but I would not be surprised to see a gap up tomorrow or even another push to the upside. I am looking more towards after options expiration for the real move. As I have said over the past few weeks, post June Triple Witching is very weak (Dow lower 15 out of last 17 years) so I expect to see a decent decline that carries into the end of June before the bullish seasonality of the July4th holiday kicks in.

We shall see. All I have are probabilities and that is what I am trading. As always, risk-management is the most important part of trading and with such a large percentage of My Options Portfolio at work I need to be disciplined. Nimble, nimble, nimble. Ohm!

Excited for the Week Ahead

For several weeks I have warned of the following:

June is also a Triple Witching month. Four times a year stock options, index options and index futures all expire at the same time. The performance of the overall market immediately following June’s Triple Witching has been absolutely horrible in years past. The week after has seen the Dow down 15 out of the last 17 years. Watch to see if the market is overbought going into the week following Triple Witching. If so, this could have the potential for a decent short-term fade to the downside.

Seasonality alone is (in almost every case) not a reason place a trade. However, when compared with the current state of the market at the time the seasonal tendency arrives, the probability of a successful trade can be increased tremendously. Always be aware of the market’s seasonal picture.

The market entered the week near a short-term overbought state and this morning’s gap to the upside and continued push led to an official short-term overbought state. As a result I entered into the following trade:

So far the trade is up 15%, but I am still down a bit on my SPY (-11.5%) and QQQQ (-14.3%) trades from late last Friday. I was anxious to get into a short position late last week (after exiting my long calls) and in hindsight I probably should have waited until the gap from 6/4 closed in IWM (which I predicted would happen for the last few weeks – oh well). Well, the gaps closed from 6/4 today while pushing into a short-term overbought state, so again, I decided the prudent thing to do was to purchase a few IWM puts. The other factor that led to my decision was the unclosed gap from this morning which has yet to close in IWM.

So, currently I have three positions (10 puts each) in IWM, QQQQ and SPY. The 1105 area was once again tested today and failed and the 1087 area also failed late in the day which means that we could witness a nice decline heading into options expiration. If not, I expect that next week the bears will rear there ugly heads. Obviously, my hope is that this market plummets over the next few days, but as I always say patience pays. Remember, this is a marathon. and not a sprint.

Note – my stop for all three trades is the highs established today.

Kindest,

Andy

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