HAPPY 4TH OF JULY!!!

I know it's only June 30th, but it's also July 4th eve-eve-eve-eve.

Thank you to all those who have served, or are serving our country - your commitment has given us our freedom.

Now onto the markets.  Today is Thursday, Monday is July 4th (markets are closed).  As explained in the last post - most BIG MONEY will be getting out of their trades tomorrow around noon or earlier.  So, I'm expecting a bit of a pullback tomorrow.

I do think that the markets are turning more bullish and believe that next week after the holiday there will be plenty of buying.

I have taken off my CBS trade and have left 2 trades on for now.  I really need to get into about 2-3 more trades at this point but I'm not going to do it today.  Instead I'll use today as my trigger to take an entry and instead actually buy my options (i.e. take my entries) tomorrow.  This way I may be able to get a better price on my options because the stock prices should be lower tomorrow.

That's my plan and we'll see how it all works out.

CBS - taking profits - for now

Just like H.I. McDonough in Raising Arizona, I'm taking my goods and running.

First, let's look at the chart then I'll explain why.

After a LONG AND DRAWN OUT PULLBACK, almost hitting my stop, CBS finally has come back around.  I sold my option today for a profit of $0.30, which was 13% ROI.

That's nothing to write home about, granted.  But I do think this stock is going to go higher and hit the target of $32.80.  The reason I got out today and took my profit is because tomorrow is Friday, the day before a long holiday weekend.  July 4th is Monday and the markets are closed.

The BIG MONEY gets sketchy over weekends, especially long weekends and they pull their money out of the market.  They do this because having a 3 day weekend gives the universe in general one extra day to lay some mishap on the world and wreck havoc on the markets at the open on Tuesday.  The last thing BIG MONEY wants to happen is to be doing good on Friday only to have something bad happen over the weekend and Tuesday morning we open with a big gap lower in the markets and now BIG MONEY is in a bad spot.  So, they simply get out on Friday - usually around noon or earlier.

When BIG MONEY gets out of the market, then prices will usually go down (i.e. lots of selling pressure because not enough buyers vs. sellers).

So, my plan is simple.  Take my profit now, and look for a re-entry next week sometime and ride this trade up to it's target.

AEP - new trade

Luke 3:5 "Every valley shall be filled in, every mountain and hill made low.  The crooked roads shall become straight, the rough ways smooth."

Here's the chart of AEP:

After about a month pull back, AEP recently made a higher high and a higher low.  Today was my entry.  In addition to a close above the high of the low day, check out these three things:

1.  The 20 and 50 day moving averages are below the opening and closing price of today's movement.  This of these are "pushing" the stock price up.

2.  The stochs were low and the black line just crossed up above the red line.

3.  The MACD lines look like they are starting to flatten out after going down.  Next move should be up for these lines.

4.  The MACD histogram getting more bullish.

In addition to the items above, I also like the look of the overall markets for a bullish trade:

The main thing to consider in these overall markets is the fact that they ALL have made higher highs today.  This is not to say that we're off to the moon now, quite the opposite - we'll probably get a pullback in the markets very soon.  ESPECIALLY since we have a 3 day holiday weekend coming up.  The big boys don't like being in the market over a long weekend, so I'm anticipating a pullback either tomorrow or Friday.

With that said, however, I still want to be in this AEP trade because I've got my edge and I'm taking it.  It could hit tomorrow, or a week from tomorrow after the holiday weekend. We'll see how it plays out.

Let's make some money.

WNR - victory!

WNR hit it's target in 1 day - Glory to God.  Here's the chart:

I bought an August 17 Call yesterday for $1.55 and sold it early this afternoon for $1.90 giving me a profit of $0.35 with an ROI of 22% in less than 1 day's trading.  Sweet.

I usually trade around 3:45pm to 4:00pm EST, but I do keep an eye on the stock prices and when it hit my target I had to get out.  I have the ability to put on an order that will get me out at a certain price, but I like doing it manually instead - this way I'm sure to get the best price and not just ANY price when I exit.

Also, by keeping my eye on the stock prices that I'm currently trading randomly during the day I can capture profit before getting a pullback.  For example, I exited approx an hour ago and already it's starting to pullback.  This is NOT to say that it won't go back up to those prices that it hit earlier, because it PROBABLY will.  But, "A bird in the hand..."

Time to log this trade and look for the next one.

WNR - time to make some profit

Isaiah 45:2 "I will go before you and level the mountains; I will break down gates of bronze and cut through bars of iron."

Time to start earning profit again.  Got into a new trade - WNR.  Here's the chart:

This is one of my new choppy markets type of trade.  Recently this stock went from making lower highs and lower lows to making higher highs and higher lows.  So, today I bought an August 17 Call Option for $1.55.  I'm looking for a quick trade targeting the most recent high.

I'll get out of this trade if the bears show strength against this trade.

Easy enough, God Bless this trade!

MYL - took loss - somebody stop this dizzy market!!!

The market keeps spinning and spinning, taking money out of the hands of traders left and right.  Bullish or bearish, you are most likely going to take some losses in this market.

Until one side or the other finally gets determined and starts moving this market we may need to keep one of these close by:

Anyway, I'm actually quite content right now.  Yes, I've taken losses, but more importantly, I've been blessed with wisdom on how to trade a sideways market, so I'm just sitting back and waiting for the right entry.

Let's look at the chart of MYL:

Okay, here's the question - why did I get out if my stop wasn't hit??  Bueller, Bueller, Bueller...

Reason: LOOK AT THAT TAIL!  Price traded almost up to my stop today.  Now, the bears DID come back in and drive that price back down, but that's scary.  Also check out the stochs just climbing up higher and higher.  And, see that MACD, it's ready to start screaming higher.

Here's another reason - the overall markets today:

If you look closely, you will see that I put a dotted blue line that represents the last high.  Now, once those price goes ABOVE that high, then what do we have???  A higher high.  And a higher high is indicative of a POSSIBLE bullish trend, because we also need a higher low.

The DIA and IWM have already made a higher high.  The SPY also went above the last high by a few pennies today (although it doesn't look like it on the chart above).  So the last one we're waiting on is QQQQ.

This should be a warning shot across the bow of bearish trades.  Be warned it's POSSIBLE that we could be switching into bullish mode.

So, I got out of the trade because of that tail, the indicators and the overall markets.  I sold my long option today for $1.64.  I originally bought it for $1.90.  Therefore, I took a $0.26 loss on it plus commissions.  This put my ROI at NEGATIVE 15%.  Which in all reality compared to the size of the losses I have been taking - is a breath of fresh air.

From here, I'm still in 2 bullish trades:  CBS, which is looking just so-so, and DELL which is starting to move now in our direction.  And once QQQQ's get going DELL will skyrocket.

I'm going to sit tight and keep an eye out for the market to pull back a little bit in order to put in a higher low.  Once I get that higher low, I'll be looking to get back into some bullish trades.  Of course, that's just my guess for TODAY.

SIDEWAYS IS A KILLER - LEARN TO TRADE IT

For an options trader, a sideways trend is a killer.

The reason that it's a killer is that usually by the time you figure out that the trend has transitioned from a bullish or bearish market to a sideways market it's usually too late and you've taken major losses.  (similar to my RES trade).

However, this has made me realize that I really don't have a sideways trading style.  I only had trending systems.  But, thanks to my RES trade, and some other recent losses, I've developed a sideways system.

I'm not going to give the particulars of it right now, but it will deal with CONSTANTLY marking out the highs and lows so I know if the stock and/or market I'm looking at is trending or sideways.  This sounds overly simple, but if you know exactly what is going on in the market when it comes to movement, then you can find your advantage points and trade them accordingly.

This new sideways trading style has been backtested extensively and will provide some nice profits in the future.  It won't be as profitable as the trending style, but at least it will be profitable rather than either not being in the market at all, or worse - losing money.

The important aspects of this sideways system are:
1.  Marking all highs and lows - thereby being completely cognizant of the market movement.
2.  Knowing where the edges are for probability trading.
3.  Knowing where the targets are once in a trade.
4.  Knowing where to take losses.

I understand the above numbered items are vague, but as I get into new sideways trades, I'll expand on them.

MOST LIKELY we're at a point now where we'll start trending (I'm guessing up) - Murphy's Law.  But, in any event the most important thing to know now is:

I CAN NOW TRADE IN MARKETS THAT ARE MOVING UP, DOWN, AND SIDEWAYS!  

Now is the time to start rebuilding the account!

RES - loss, big time

Well, I had a 100% loss in RES.  Two, reasons for this, one valid one stupid.

Look at the chart above.  You can see the entry day in green.  I was looking for a bounce back up to the most recent high (referenced by the horizontal green area).  But, we didn't get that.

Instead the stock went SIDEWAYS.  For a long time.  This really killed my trade.  As you can see, the stock never hit my stop until about 3 days before it's expiration.  I looked to get out of the trade and by then I could have only sold my call option for $0.05 - basically worthless.  Not worth taking action on.  At that point I had a "lottery ticket" and my only hope was for some type of news that would pop this thing way higher - very very long odds, but by this point, I really had no other option.

There's 2 lessons to learn from this:
1.  Stocks don't only go up and down - they also go sideways.  So if you are an options trader like myself the sideways stuff makes the option price go down and just like this example, my option expired worthless.  Nada, zip, nil, zilcho.  Therefore I had a 100% loss (i.e. read "not good").

2.  The 2nd lesson is this.  IF, you still happen to be in a trade and you are 2 weeks away from expiration with no real movement - then GET OUT.  If I would have gotten out 2 weeks prior then I would have exited by selling the option for $0.97.  Now, this STILL would have been a loss, but a much less of a loss (approx $100 less of a loss).

I bought this option for $1.55 and could have sold it for $0.97, thereby my loss would have been $0.58 for an ROI% of NEGATIVE 37% vs. a $1.55 loss with an ROI% of NEGATIVE 100%.

So, you can see that the last 2 weeks really kills the value of your option.  I'll take a 37% loss over a 100% loss any day.

This brings me to another topic, which I'll discuss next.

Working on making these pics clickable

Try clicking on these pics to see them enlarged from last post.  Going to work on that so it'll be easier to see charts, etc.

BBVA - target hit, but lessons to be learned!

First, things first, the chart:

Lots going on in this chart. The main thing to get out of it is this - I entered this trade on June 8th (the candle in green) looking for a move down to the most recent low.

And guess what? It did just that with an amazingly bearish candle just two days later. That was a big move for the stock. So, you're probably asking yourself how many gazillions of dollars did I make on this - because that was as sweet trade.

Well, I made $0.10. As in ten cents, and in real dollars I'm talking an entire Alexander Hamilton. Enough for a lunch by myself somewhere. And, once I take out the $3 I paid in commissions on this trade, I'm now down to $7 George Washington's. Which still gets me a lunch, just at a crappier place.

The lesson to be learned here is that you must make sure you are placing trades that have a good probability of making you money once you get the desired move from the stock. Hindsight is always 20/20, but there's two things to learn from this.

Thing #1 - let's look at the broker's software I use for placing the trade. I have the day that I placed the trade in this screen and my trade is highlighted on the left side of the screen:

You'll see first two numbers for my October 11 Put is $1.05 and $1.20. The $1.05 is what the broker will pay you for this Put if you already own it. The $1.20 is what the broker will charge you to buy this Put from him/her. This is called the "bid/ask spread" and is how the broker makes their money.

The problem is when this bid/ask spread is "wide". Meaning there's a bit of a difference between the two. In this case, there was $0.15 difference, which is a lot considering the price to buy the Put was $1.20. That spread was 12.5% of the cost of the Put!!!

This still may not mean a lot to you, but it basically means that your stock REALLY HAS GOT TO MOVE BIG TIME in order to compensate for this bid/ask spread. Basically you are starting 12.5% in the HOLE.

Here's another illustration of a bid/ask spread, but this time of a heavily traded ETF, the SPY:

Again looking at the highlighted Put option, you could sell it if you had one to the broker for $3.00, or you can buy one from the broker for $3.05. The difference in this is only $0.05. However, that nickel only represents 1.6% of the total cost to buy the Put. A HUGE DIFFERENCE compared to the prior example.

Thing #2 - A low priced stock has low priced options, in general. However, it also usually has low priced movements as well. A 10% move in a $10 stock will bring you significantly less NET profit as compared to a 10% move in a $30 stock when trading the same amount of option contracts.

Yes, there's an argument that ROI% is the same and it's valid. But, you gotta remember commissions. The more options you buy, the more you are paying in commissions which will ultimately eat more of your NET ROI%.

Example: to get the exact same gross outcomes, you can compare:

1 option contract of a $30 stock with a 10% movement

vs.

3 option contracts of a $10 with a 10% movement

Both will give you the same gross profit of $3. However with the $30 stock, you'll only have 1 set of commissions (you get charged to buy and to sell the option both). Where as the $10 stock will have 3 sets of commissions.

So, my point is this:

1. Keep the bid/ask as small as possible. There's no hard and fast rule, come up with one on your own.

And

2. I'm not trading anything under $15 stock price from now on.

There's a ton of foolery that the marker maker puts into the option pricing, I believe the formula is close to the one on this chalkboard:

But, if you can cherry pick the best trade set ups, with the smallest bid/asks and don't go too low in stock price, then you'll have better profitable ROI%s.

All in all, I'm still happy with this trade. Praise the LORD for it!! I did make a little (literally) bit of money and I re-learned some valuable lessons.

New Trade - BBVA

Continuing with my hedge in this mixed up market...

In addition to MYL, I also added BBVA as a bearish position. Here's the chart:

This one is a little different than MYL. BBVA is a foreign financial stock, and anything (especially foreign banks) remotely related to the financial industry is just taking it's lumps right now. So, I think that's going to drag this stock down as well.

Today BBVA broke down through a small level of support and I'm looking for it to continue down to it's recent low. We also have the 50 and 200 day moving averages just above the most recent high. The stop is just above that recent high.

I bought an October 11 Put for $1.15, and am looking to make a profit on this one as well.

Romans 8:37 "in all these things we are more than conquerors through him who loved us."

New Trade - MYL

The market is just all over the place lately. It doesn't know where it's going, I think it is doing the "dizzy bat" right now...

So, my portfolio was looking like this today - I had on 3 long Call positions and just took a loss yesterday in MRK. Since the market is so goofy, it could really go anywhere. If it goes up then my 3 long Calls will make me profit. However, if it keeps going down then I'm going to take further losses to my account.

I've decided to hedge my portfolio, of sorts, by getting into some long Put positions. At least this way if the market does continue lower, then I'll make some profit on these Put positions to offset the losses in my Call positions.

I decided to get long into a bearish position on MYL today. Here's the chart:

As you can see MYL has been going lower recently. And today was the 3rd day closing below the old support/new resistance level. The target is the next level of support below and the stop is just above where the bears came in this last time to drive down price. If you look closely, you'll see the purple 50 day moving average above this stock, and the 200 day moving average below the stock, near the next level of support below. There's a good probability that this stock will trade down to that support level.

I bought an Oct 23 Put for $1.90. So, I've got tons of time. We'll see what happens.

Romans 8:31 "If God is for us, who can be against us?"

MYL - loss

The markets are completely schizophrenic right now. This isn't just my diagnosis, but many other traders as well. Don't even bother listening to any news related to the stock market or you'll become even more mixed up in the mind (even more so than usual).

I follow a few different trading blogs to get some different perspectives and the one thing that the different traders agree on is that this is a VERY DIFFICULT time to be trading. But, I'm a trader and that's what I do and "what does not kill us makes us stronger".

So, I took a loss in MYL yesterday because I have 2 days consecutive closes in my stop zone. That's all there is to it. Nothing magic, I'm not upset, the market is not "out to get me". The stock simply didn't go where I thought it would mostly likely go. That's all, so I took my loss.

Here's the chart:

Fairly straight forward and simple. I thought it would have gone up to hit resistance. Instead it broke through the recent support. It MAY stop at the 50 and 200 day moving averages just below it and bounce up to kingdom come. It MAY break down through to averages and go to zero. Or it MAY just stay in this same zone for the next 4 weeks. I'm not a trader who relies on possibilities, I'm a trader who relies on PROBABILITIES.

I originally bought 2 Call options for $0.54 each and sold them yesterday for $0.17 each. For a net loss of $0.74 which equates to an ROI loss of 68%. Not pretty, but that's trading.

Now, onto the next dealio.

Ouch

Stepped in front of that train!!! What a slap that was. Check out today's charts vs. yesterdays:

I feel like the guys above today. Just got clobbered. However, my position sizing was correct, my entries were correct, and if I get stopped out of every one of my positions and take a loss then that's life.

If the worst happens then guess what I'll do next????

TAKE THE NEXT ENTRY. The market will pay for this in the long run - enjoy your temporary victory.

New Trade - MRK

Deuteronomy 28:12 "You will lend to many nations and not borrow."

I put on a second trade yesterday in addition to CBS, it was MRK. Here's the chart for MRK:

This trade is different from the CBS trade, I'm just looking for a quick move back up to the recent highs. In this pullback, yesterday we had a close above the high of the low day. Combine that with the overall markets yesterday and we've got an edge to the bullish side.

The target is $37.50 and the stop is $35.95. I bought 2 July 37 Calls for $0.54 each. Just looking for a relatively quick move up.

New Trade - CBS

Deuteronomy 28:8 "The LORD will send a blessing on your barns and everything you put your hand to."

Got into a new trade yesterday, CBS. Before I show you that chart, I want to show you the charts of the overall markets.

The markets were in a pullback mode for approx a month and formed a downward sloping channel during this pullback. Yesterday, all 4 markets broke out of their channels to the upside. This tells me that there's an edge to the upside. Once, I seen that, it was simply a matter of picking a stock with a good edge. Here's the chart of CBS:

You could call this pattern an Ascending Triangle. Doesn't really matter what it's called, the main thing is that we've have 2 consecutive days closing above resistance and now I'm looking for this to move up to the next level of resistance which is approx 32.80. I'll play it one day at a time to see how well it's moving as the next level of resistance was traded approx 3 years, so if I can get a decent quick profit short of that, then I'll take it.

I bought a Sept 28 Call for $1.85 and my stop is 25.21. So, I've got plenty of time for this stock to work it's way up.