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Northrop Puckett's  Instablog

Northrop Puckett
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Options trader, gin/whiskey drinker, jazz listener, bibliophile.
My book:
Scenes on the Prairie
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  • IBM Double Calendar

    I am looking at an (NYSE:IBM) double calendar this week. An April/May 205/215 calendar can be bought for about $2.45. This week has high implied vol compared to May, which is good because that makes the premium you are selling this week pretty rich. Any volatility crush should not hurt the May vol as much since it is already low. As with any directional play, I will keep this pretty small relative to overall portfolio size (about 1/30th). Still, the odds that you will lose money on the trade a small relative to potential gains. The Optionsxpress Trade & Probability Calculator projects that we only have a 10.51% chance of doing worse than break even. There is a 50% chance we land in the sweet spot from $205 to $215, where our potential gain is over 100%. I like this risk vs reward.

    Music suggestion: Everyone should check out Freddie Hubbard "Goin' Up." It's a fantastic jazz album.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IBM over the next 72 hours.

    Additional disclosure: The position is neutral.

    Tags: IBM, options
    Apr 07 12:49 PM | Link | Comment!
  • Scenario

    Lots of technical readings are pointing to near term exhaustion. The economy may be getting healthier, but that has little to do with shorter term market moves. We could well see a correction lasting a few weeks. I wouldn't call what I expect to happen "The Top," but I think we see a solid pullback to the 1400s for a few weeks or more.

    I believe in a few things. I believe that technical analysis works and Ichimoku is my preferred system (although there are many great methods). I also believe in patterns that occur over and over again, everywhere in the world, including markets. And finally, I believe that the market is so forward looking that it almost fears the recent strong economic data, because it indicates a greater chance of Fed monetary exit plans in the Fall.

    As mentioned above, the strong data has mixed implications in trader/money manager psychology. That can be a catalyst, combined with temporary buyer exhaustion, to take some of the steam out of the market

    Regarding Ichimoku, you can use Ichimoku a few different ways. It serves to show support and resistance levels. It helps you identify the trend. And it can provide you with good entry/exit setups. I think that it is important to use all of these in your analysis. So you want to find out, what is the big picture trend? What are my current big support levels? And would cause me to change that opinion?

    (click to enlarge)SPX Daily

    As you can see above, the fact that price is above the Tenkan (blue line) and Kijun (red line), above the cloud (shaded area), and the Chikou (white line), all show that the trend is up. The same goes for even larger time frames (weekly) as well. I like to use the four hr chart too, because it fits my holding period best. It is also indicating the trend is up. However, the four hr looks to be turning.

    Regardless, if we close below 1447.50, here is what I expect to happen. We will test 1520, and may initially bounce off it, but due to the extreme size of the recent move, the lack of hedge fund holdings in cash, the weekly RSI of 70, and the finally "high" retail stock enthusiasm, I believe the pullback will go lower than 1520.

    I believe we will follow the same pattern from last March, when we saw the same pattern. Below is a shot of what happened the same period last year. See the similarities?

    (click to enlarge)

    So what happened last year? Well, it's easier for me to explain how the analogy fits. We will bounce down to 1520, pause and then go to 1480ish. Then we will get a bounce back up to 1520, then 1480/90, then back up to towards the highs, before proceeding down to a bottom near 1440/50.

    That's the analogy, roughly speaking, that happened last year and may happen again. Below is the chart showing how the rest of March and April played out last year...

    (click to enlarge)

    The Play

    I intend to buy an Apr 152/147/142 put butterfly for about .45 and look for a move to 1470-1500.

    Follow-up @ 10:36am 3/14/13: Still haven't bought yet. Waiting for a close on hourly time frame below Kijun, which currently sits at 1554.

    Disclosure: I am short SPY.

    Additional disclosure: I added SPY 154 puts this afternoon.

    Mar 14 6:04 PM | Link | Comment!
  • Exchange Stocks: Week In Review (Feb 25 - Mar 1)

    CME Group

    CME Group (CME) was downgraded by Zacks to an "Underperform" on February 27th. Zacks cited Y/Y revenue declines and decreases in analyst earnings expectations for 2013 and 2014 as reasons for the rating. Zacks noted lower trading volume and lower transaction fees as the cause for the analysts' reduced projections.

    News also came out last week about the CME Group approaching the Deutsche Boerse about the possibility of a merger. However, Deutsche Boerse said that it was not in deal talks. A merger does make some sense as they have some overlapping products.

    CME traded up $1.61 on the week to $59.92.

    (click to enlarge)

    NYSE Euronext

    NYSE Euronext (NYX) stated that it will announce Q1 earnings on Tuesday April 30, 2013. The news release will come out at 2:30am ET and a conference call will occur at 8:00am ET.

    NYSE Euronext announced that it will review whether mandatory testing and backup facilities should be implemented to withstand natural disasters. This was prompted by issues surrounding Hurricane Sandy last Fall. It is not clear how much implementation of these back-up features would cost.

    NYSE Euronext closed the week down $.32 to $37.16.

    (click to enlarge)

    CBOE Holdings

    CBOE Holdings (CBOE) announced that the cost to settle a probe with the SEC may amount to $10M. The probe concerned whether the CBOE was properly regulating itself. The company said that in addition to a monetary fine, it may also have to change compliance procedures.

    Also last week, CBOE reported that February trading volume was up 3% over January trading volume, but was down 15% compared to February 2012.

    CBOE traded down $.12 on the week to $35.42.

    (click to enlarge)

    Nasdaq OMX & Intercontinental Exchange

    Nothing newsworthy happened to Nasdaq OMX (NDAQ) or Intercontinental Exchange (ICE) last week. Nasdaq OMX traded up $.22 on the week to $31.58. Intercontinental Exchange traded down $1.98 on the week to $154.

    (click to enlarge)

    (click to enlarge)

    Industry News

    The task force set up by the International Organization of Securities Commissions to investigate how to improve LIBOR oversight stated that it will publish its findings and plans by this Summer.

    The CFTC Chairman said that the Overnight Index Swap (OIS) Rate could be an alternative to LIBOR, which he obviously is not a proponent of. He stated that LIBOR is to easily "fixed," whereas OIS is based on transactions in the marketplace. He also listed other options including "benchmark rates based on actual short-term collateralized financings, and benchmarks based on government borrowing rates."

    LIBOR remains a reference rate for 70% of the U.S. futures market.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: CBOE, NYX, CME, NDAQ, ICE, exchanges
    Mar 03 11:41 AM | Link | Comment!
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