Options Trader: Thursday Wrapup

Wow, what a day!! We made money on both sides (short and long)!!

We started off with Southern Copper Corp. (PCU), and United States Steel Corp. (X) puts, that were purchased on Wednesday. Right off the bat, those PCU puts doubled overnight!! We sold them way too early, as both PCU and X continued to drop. But, as the market bounced, we got into Research in Motion Ltd. (RIMM), Precision Castparts Corp. (PCP), SunPower Corp. (SPWR) calls, and made money on the long side. This is also why I’ve been staying mostly in cash, so I have the “power” to react when I need to. Still not the time to jump in “head-first”, yet. Please read on.

SPX bounced back to close “UP” by +4.57 points, the Nasdaq was off by almost 8 points, and the Dow lost 15.69 points.

The two weak sectors that have been causing most of the problems on the market were actually among the strongest on Thursday. The Housing Sector Index[HGX] went up +1.18%, and the Select Sector SPDRFinancial (XLF) went up +3.01%!! VIX went as high as 37.5, but closed flat at almost 31! Semiconductors (SOX), and the Amex Biotechnology Index (BTK) hung on well!

I previously, said, “…taking the respective Feb-Mar range for SPX, we’d get 1400-1440. But, if things break down fast, as there’s definitely some panic on the market, we may have to look at 1380 for support!” Sure enough, after big losses in the Asian markets, people panicked and quickly pulled things down further. SPX 1400 wasn’t enough to make a stop!

SPX (15 minute, 5 days)

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I don’t normally show an intra-day chart, let alone a 15-minute chart. But, I thought this is very valuable to demonstrate. As you can see, the intra-day MAs have very sharp down slopes, indicating that the downward momentum is high. This is why I didn’t think 1400 was enough to get the initial stop. The SPX quickly penetrated 1380, but, bounced back (Point #1). At Point #2, the SPX tested 1380 again. And, it held up. Notice how on the initial bounce from Point #1, it got held down by the 30-minute MA (black line). Once the SPX cleared the intra-day MAs, there was little intra-day resistance, and it jumped all the way to close in the green!

SPX (daily chart, 6 months)

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On the daily time frame, we see that the is SPX now within the 1400-1440 support range. We need to see some follow-throughs with higher highs, and higher lows to confirm this bottom.

Nasdaq

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Although it didn’t make all the way to green today, the Nasdaq did close within its support range of 2400-2475!

On Thursday, Countrywide Financial Corp. (CFC) announced that it was drawing from its entire $11.5 billion bank credit line to help facilitate its operations. Its shares fell as low as $15/share! It later bounced back with the market, and continued to gain after the market, trading at nearly $20. Hewlett-Packard Company (HPQ) was trading marginally high in AH, as it beat the market estimates on its earnings. Dell Inc. (DELL) restated its earnings, going back as far as 2003. Surprisingly, its shares are trading +2% higher after the market.

When I wrote this, in Asia, Japan was down more than 300 points. Hong Kong was down more than 200 points, and China was down just 10. They opened in a similar fashion as the U.S. market. Let’s see if they can get a closing bounce in a comparable way.

I’m still being patient, and staying mostly in cash. Let’s see if the market can confirm this bottom.

Comments

[omooc:]

While it is fascinating to read what you did (you did well, and thank you for telling us what you did), one wonders how a retail option trader can be half as nimble as you. omooc

2007 Aug 19 05:18 PM

[MyHappyTrad...:]

David, you should come by my blog and check out my Happy Trades!! page. Those are actual trades that I've made. On my member site, that page is updated during the day when the trades are made. On the members' board, I also try to call out the stocks that I'm watching before I make a trade. I also have email alerts to notify members when I make a trade. Please understand that these are not trade picks. These are some of my trades in my personal "notebook" that I'm opening up for my members to see.

www.philstockworld.com.../

2007 Aug 21 12:47 AM

[Philip Davis:]

Hi David - I didn't actually write that one, it was written on my Vaca by Happy Trading (Andy Wang). Andy is a genuine retail investor and a member (now contributor) at philstockworld.com. Our mission at PSW is specifically to teach regular traders to do what we do and we've been having great success. For people who have to work and can't trade all day, the members are forming an investment club which will help smaller traders diversify and get involved in spread trades they may not have margins for on their own.

2007 Aug 20 02:22 PM