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Option Millionaires was started in February 2008 to provide traders with information about option trading. Led by three career option traders, whose pseudonyms are JimmyBob, UraniumPintoBeans, and Vantillian, they started one of the most popular option trading communities on the web. Now, Option... More
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  • Genworth Financial - Here Comes The Correction! (Technical Signals)

    By Christopher Diodato -

    I must say, the GNW call might have been my best trade year to date, rising over 30% in under four weeks. That said, with such a parabolic rise, there has to be a correction around the corner. For those who bought with me in November around $5.50, the consecutive 3-5% daily rises have been exciting, but it seems that sellers have stepped in. The stock is, for at least the short term, now vulnerable to a decline. Here's what I'm looking at.

    Long Term

    From the long term perspective, GNW still seems like a strong buy, with a breakout from a two year descending triangle pattern, and other, shorter term breakouts from bullish rectangle continuation patterns.

    (click to enlarge)

    Still Likely To Correct

    The price action today showed that supply had stepped into the market, with a long legged or "rickshaw man" doji on high volume. Price advanced to new intermediate term highs this morning, flattened off, and then fell back to opening levels. While, still up nearly 3% for the day, this action of sellers stepping in during late afternoon is alarming.

    In addition to these supply/demand issues, price has been diverging with momentum on the 30 minute time frame.

    (click to enlarge)

    I have, at this point, correction targets at around $6.30, and then at $6. I'm still extremely bullish on this stock for the longer term, so I will likely just ease my current position (long $6 calls, short $5 puts) by covering my short put position, and then selling $6 puts once the price reaches those lower levels. If I see a break above today's trading range, I will be back on the bull train, if not, it's time to let the stock take a break.

    Happy trading!

    ~Chris Diodato

    Disclosure: I am long GNW.

    Additional disclosure: Holding a bullish synthetic spread on GNW

    Dec 11 9:14 PM | Link | Comment!
  • Predicting Gold's Next Move – Descending Triangle Gives 8% Swing Target

    By Christopher Diodato

    Since the start of September, gold has been floundering around in a well-defined trading range between about 1610-1750, not really deciding to trend in either direction since. Since that time, however, the gold market has been consolidating into a price pattern that allows us to project intermediate-term targets. The pattern I see is a descending triangle.

    (click to enlarge)

    There are two targets on this chart. The bull target would be activated once the price breaks above $168.50, corresponding to $1685 for the actual spot price of gold. The bear target is activated once $161 is broken, and confirmed as a strong sell signal once $159.50 is broken.

    Which direction do I see price breaking out? Well, it's looking bullish in the very short term. First off, today's price action represented a "bullish engulfing" candle pattern. After these patterns occur, there is, at least, some follow through with a short term price rise.

    (click to enlarge)

    Other momentum indicators show minor divergences in price, which usually precede a price rise. Still, that price rise might not be sufficient to trigger a breakout. What I would like to see is an advance on high volume, such as the volumes seen in the August-September rally when gold rose over $250 in one month Average daily volumes on both rallies and declines is current about half the Aug.-Sept. levels. Once that buying interest comes back, it's time to catch the gold bug again.

    Happy trading!

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

    Dec 06 9:37 PM | Link | Comment!
  • Holiday Effect Giving Stocks Upward Bias Today - Buy Weekly Calls?

    ​By Chris D

    I'm the type of person that usually wins poker by manipulating the players. Same with playing the stock market; I take advantage of crowd psychology. Today, however, has always been one of the trading days that I come to the market to play pure probabilities.

    What's so special about today? There has been a strange "effect" noted by several analysts regarding trading days and holidays. They found that the trading day before a market holiday was usually more positively biased than most trading days. Also, it was discovered that the day ​after​ the holiday was usually negatively biased. Therefore, today, the day before thanksgiving, the market has a positive bias.

    Here are the summary statistics I gathered for the last 60 years in the S & P 500. The data goes to 2010. To download my spreadsheet from my DropBox, click here

    Average Gain0.41%
    % Losers21.67%
    % Winners78.33%
    Standard Deviation0.84%

    The trading strategy buys the S & P 500 index at the close of two days before Thanksgiving and sells out of the position at the end of trading the day before Thanksgiving.

    Notice that the frequency of winning trades with this strategy is quite high, especially when the average for other days gives us only a probability of slightly above 50% that the market will gain on the day.

    While the average gain is not too impressive, this "holiday effect" can still offer traders who use leverage a trading "edge" today. Good luck!

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

    Nov 21 8:14 AM | Link | Comment!
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