Short-Term Trading in Options.
25 February 2011, Monday
Last week was a challenge for our options trades. Fortunately, we had a lot of options close out with February expiration. There has been a bit of deterioration in the markets this past week, but not as much as we expected, giving the selling that came in early last week. Our table below shows the indexes we follow. In terms of the short-term trading system included "Close vs Midpoint Trading System", we have still a predominantly bullish picture. The Bank Index, Dow Jones Transports, the Housing Index, The Semiconductor Index, and the Gold and Silver Index have turned flat, as far as American indexes. China, Taiwan and Korea have also turned down.
Remember, "flat' means that 'long' or 'short' positions have been terminated. In almost all the cases of 'flat' here, this indicates a 'sell' but not a 'short-sell' signal -- except in the case of VIX. VIX is 'flat' from a 'short' position. Three indexes changed from 'long' to 'flat' this week. We will see what happens next week -- but charts we've been looking at over the weekend suggest the rally is not dead yet.
Short-Term Trend tells you the direction of the market in the shortest trend we follow; attach this to M4 --- our 'reverse' momentum indicator -- when it falls, the price rises; 100 is oversold; 0 is overbought -- and you get a sense of where each index is short-term. Our Char-Meter Trend tells you if the indexes are at or near the top of their range (+7) or the bottom of their range (-7). Look for a direction out of these two readings: BKA is declining; DRG is declining; HGX is declining; JPN is declining; VIX is rising.
We like long positions still. We think we'll have another leg up. We also think we'll have a rally continuing until Bernanke gets impeached or forced to resign -- and Fed policy changes toward tightening, or at least market-neutrality.
|Tr System||Yesterday •||Today •|
|^AORD_D||4,924.90||4.924||55.729||Long||7||7||All Ordinaries Australian Index|
|^BVSP_D||66,902.53||223.751||100||Flat||7||7||Sao Paolo Brazilian Index|
|^DJI_D||12,130.45||16.887||0||Long||7||7||Dow Jones Industrial Average|
|^DJT_D||5,060.37||-47.546||0||Flat||7||7||Dow Jones Transport Index|
|^FCHI_D||4,070.38||7.418||0||Long||7||7||CAC French Index|
|^FTSE_D||6,001.20||7.882||0||Long||7||7||FTSE Daily Index|
|^GDAXI_D||7,185.17||9.966||14.711||Long||7||7||DAX German Index Daily|
|^GSPC_D||1,319.88||2.164||0||Long||7||7||S&P 500 Index|
|^HGX_D||114.81||-1.072||0||Flat||1||-1||Philadelphia Housing Sector Index Daily|
|^HSI_D||23,012.37||-63.717||11.452||Flat||7||7||Hang Seng China Index|
|^HUI_D||555.116||2.597||23.35||Long||7||7||Gold Stock Index Daily|
|^KS11_D||1,963.43||-10.265||47.291||Flat||7||7||Kospi South Korean Index|
|^N225_D||10,526.76||21.695||100||Long||7||7||Nikei Japan Index|
|^NDX_D||2,346.29||4.706||0||Long||7||7||Nasdaq Index Daily|
|^OEX_D||592.25||0.943||0||Long||3||3||S&P 100 Index|
|^RUT_D||821.95||1.797||0||Long||7||7||Russell SMall Cap Index Daily|
|^SMSI_D||1,108.41||4.807||0||Long||7||7||Madrid General Index Daily|
|^SOX_D||463.69||-1.906||0||Flat||7||7||Phildelphia Semiconductor Index|
|^SSMI_D||6,537.20||3.584||80.122||Long||7||7||Swiss Index Daily|
|^TWII_D||8,599.65||-41.977||28.191||Flat||7||7||Taiwan Weighted Index|
|^TYX_D||4.516||0.004||100||Long||1||-1||30-Year Treatury Bond Yield|
|^VIX_D||19.22||0.392||100||Long||1||3||CRB Volatility Index Daily|
|^XAU_D||212.21||0.699||22.382||Flat||7||7||Philadelphia Gold and Silver Index Daily|
|^XCI_D||996.882||1.446||0||Long||7||7||Amex Computer Index Daily|
|^XOI_D||1,354.55||3.427||0||Long||7||7||Oil Stock Index|
|* M4, Momentum: Reverse reading: 0=overbought; 100=oversold.|
|* Chart Meter: 7 is Top Zone; -7 is bottom zone.|
Our options trading continues to do well. We re up 44% since December 20, 2010. Most of our systems are doing well in this bullish environment -- but we are making money both with long and with short positions.
OPTIONS SCORECARD (SINCE 12/20/2010):
|CGTS OPTION PORTFOLIO (Since 12/20/10)||Active|
|DAILY TRADES PLUS|
|655.95%||Chart Meter TR 1/11 B||$196,783.73||3|
|163.89%||M4 Accum 00 14||$196,663.60||12|
|188.90%||MJCF Close Medium 2 (3)||$113,339.10||6|
|197.79%||M2F AVG Alt Diff ASP||$118,675.50||6|
|205.52%||MJC M2F M53 Combo||$102,758.00||5|
|61.91%||MJC CM Simple Sum 2||$55,715.46||9|
|35.60%||M5 3 ASP LT 2a||$99,670.10||28|
|54.07%||M4 Spike 21 2/11||$48,667.20||9|
|163.06%||M2F 14% Trade||$179,365.36||11|
|158.35%||M5 3 Avg Diff ASP Sum||$79,173.70||5|
|14.91%||MJC Close vs Midpoint 2||$14,905.50||10|
|105.02%||M5 3 Test Double Combo||$115,521.70||11|
|19.49%||M2F ALT Tweek 2/11||$7,794.50||4|
|50.53%||CM ASP Up2||$5,053.00||1|
|24.63%||T5SS/CM ASP Swift Tr 2||$7,389.00||3|
M5 3 Test Couble Average ComboTrading System.
Bought: BMO March 55 calls @ 5.1 2/9/11.
SOLD: 2/25/11 @ 8.2. Gain: 61%.
M5 3 Test Double Average Combo Trading System.
Bought RIMM April 60 calls @ 5.69 2/9/11..
SOLD 2/25/11@ 7.65. Gain: 34%.
We like these positions.
Buy BP March 45 calls.
Buy ICON March 20 calls.
Buy RSX March 40 calls.
A Disclaimer of sorts:
I will update these positions regularly, so we can all see how we are doing with our short-term speculating.
I am bullish on gold long-term (until Bernanke is fired, and more generally until about 2019, the end of the deflation cycle) -- and I'm relatively bullish on stocks until QE is abandoned. QE does many things, one of which is to try to make sure that stocks and bonds don't decline. The Fed, quite likely, has guaranteed to bankers the advance of stock prices. As long as the Fed is willing and is allowed to backstop stock prices, short positions are very dangerous, except in isolated cases. Bond vigilantes are showing Mr. Benanke that his designs may not be able to proceed without resistance however. Rising rates are a slap in the face of American power; the slap is welcomed by those of us who think debt is the problem that needs to be addressed, destroyed, rather than expanded and extended.
Trading options is highly speculative and can be dangerous. Pricing of options is never very clear; buying options is almost always less prefereable than selling options, in terms of likely profits. But buying options gives an investor a HUGE BANG FOR THE BUCK. Getting accurate price data on options (especially those thinly-traded) is also often a problem, with which we'll have to work. Typically we work with the last close, if it falls between bid and offer. If it does not, then we average the bid/offer.
If one knows what direction a stock is moving, short-term options can be profitable. The problem with options, of course, is that they, like ourselves, decay with time.
The cheaper options expire more quickly (one can always buy long-term options is one wishes to speculate on long-term stock or market moves). I like short-term expirations, cheap options, and getting in and out (with profits).
I have many short-term trading systems. I will use several in this Options Corner. The first I start with I call "M5 3 Chart Trade" which really relies on the M5 3 Momentum Indicator to trigger the trade, always in the same direction of the major trends.
Successful trading! We know the game is fixed; but let's ride on the back of the dragon for as long as we can.
More information on the CGTS systems can be found at:
MICHAEL J CLARK
Clark's Gate Timing System
84 4 221 92210