Wow, what a day! Our downside trades really paid off, including an overnight +500% gain on FAZ calls! (I'll go over the trades later in this article.)
This past weekend, in my Market Forecast, I said,
"For the new week, the market is trying to draw a bottom. We could see buying continue to start the week. But, next week is expiration week for August options. So, we could see volatility pick up starting mid-week." (We'll go over this in further details this weekend.)
This is exactly what happened. During the first 3 days of the week, buyers tried to push the market higher, but, could not break SPX above 1200. Starting on Tuesday, we already cleared out our longside trades and started trading on the downside. I also added in Tuesday night's article, titled "The Selling Returns":
"Watch those downside levels. Upside is having a hard time gaining momentum."
I know a lot of people that frantically read any information they can find online about the stock market, or about any particular stocks that they have plays in. Or, they get glued to the TV, watching program after program on CNBC (most of the time, I don't even have the TV on during market hours because I think better without the noise). Often, reading and hearing too many opinions can actually confuse you more and make your mind less clear. Every weekend, I write a Market Forecast article, in which I try to sum up what can happen in the coming week in one, succinct, paragraph. It's easy and simple, and you can get a good idea of what's coming and plan your trades accordingly. (To get my weekly Market Forecast, all you have to do is subscribe to my Premium Articles for just $49/month.)
Wednesday, in the Trading Room, we made more downside trades on fast moving stocks. I called out individual stocks as they started to fall:
August 17, 2011 7:06 AM
August 17, 2011 8:54 AM
235 puts almost doubled from this morning! (NFLX 235 puts went as high as $19.85 today)
August 17, 2011 9:00 AM
August 17, 2011 10:26 AM
310 puts almost doubled in 90 minutes (CMG 310 puts went as high as $28.2 today)
August 17, 2011 10:44 AM
got a nice scalp on 85 puts... (DECK 85 puts went as high as $9.6 today)
We also picked up FAZ Aug 60 calls for just $1.1! The thinking here is that if the market breaks support, FAZ would likely move fast. FAZ traded above $80 last week and closed below $58 yesterday. This trade gave us a lot of leverage while keeping the risk at a minimum. This morning, the market tumbled and broke the support at SPX 1180. FAZ gapped up at open and we took profits on those August 60 calls on the morning spike at near the day high:
August 18, 2011
07:12 | HappyTrading FAZ ($66.30) Sold to Close 08C60 Aug 60 calls, at $7.00 +536%
07:04 | HappyTrading FAZ ($65.80) Sold to Close 08C60 Aug 60 calls, at $6.40 +482%
If you had traded with us and spent just $330 to buy 3 contracts of those FAZ 60 calls, you would have cashed out today with more than $1900, enough to pay for 2 years of our Gold Package (3 services) subscription. And, if you had traded 10 to 20 contracts, you would have made more than $10,000 today!
We didn't stop there. After seeing the market break below 1180, I knew the market will go lower intraday, as discussed in the Market Forecast last weekend. So, we added more downside plays and got more winners, including an intraday double on APA August 100 puts:
August 18, 2011
12:48 | HappyTrading WYNN ($134.50) Sold to Close 08P135 Aug 135 put, at $2.55 +31%
12:35 | HappyTrading APA ($97.80) Sold to Close 08P100 Aug 100 put, at $2.80 +75%
12:10 | HappyTrading APA ($97.40) Sold to Close 08P100 Aug 100 put, at $3.20 +100%
To be a successful trader, you have to be impartial to which way the market moves, whether up or down. If fact, on the downside, things tend to move much faster and you can potentially make more money!
Here are some of today's other big movers:
GOOG traded down to $500.49 and the 540 puts that I played on Tuesday went as high as $39! The 510 puts went up over 1000%! PCLN was down as much as $40 intraday and the 475 puts, which closed at $1.2, went above $24, a 2000% rise! AAPL traded down to $361.37 and the 360 puts went as high as $3.95, which were only $0.1 yesterday. So, a mere $100 on the AAPL 360 puts could have turned into $3000+. AMZN 190 puts opened under $2 and went above $10 intraday, that's a +400% intraday profit. CMG 300 puts were under $4 this morning and traded as high as $20.8.
I'm pointing out these big movers to hopefully help some of our new readers to see the possibilities and the power of downside trades. One thing to know is that when the market comes down hard, few stocks survive the selling. The ones that have held onto gains for a while could fall especially hard. CMG and PCLN are 2 very good examples today.
The Dow finished down 419.63 points; SPX lost 53.24 points; Nasdaq tumbled 131.05 points:
Needless to say, most sectors were down big! OIH (oil services) stumbled more than 7%. Almost every other major sector was down more than 5%! GLD (gold) made a new all-time high, with gold trading above $1820/ounce!
SPX fell 53.24 points to close at 1140.65, just above 1140. It closed below its daily MAs and the MACD went lower.
Nasdaq tumbled 131.05 points to close at 2380.43, below 2400. Its MACD also went down.
In the Trading Room, I called out the support for SPX early:
August 18, 2011 7:17 AM
has some support at 1140...
That's exactly where we closed today. For members that are in the Trading Room, you should carefully watch the levels that I call out, and consider locking in some profits when the market gets close to those levels or appear to trade sideways at those levels. The market was impressive again in the last hour today, with buyers rushing in. We cashed out all of our puts today and are once again back into mostly cash.
Another thing that I want to point out in volatile markets is that the direction in which the market goes could change from day to day. So, if you hold positions overnight during the expiration week, it's probably better not to risk much (such as the FAZ calls that we held last night). If you are heavily positioned on one side, and the next morning you wake up with the market going in the opposite direction, you'll likely either freeze or have a very emotional reaction. You freeze because you might hope for your positions to improve before you take your loss. While you're hesitating and things are moving fast, you'll likely miss very profittable trades going in the other direction. Maybe you get upset and take your loss(es) at open, or you freeze first and take a bigger loss later and get even more frustrated (sounds familiar?). Either way, once you're emotional, it's better that you don't trade. When you drive, you should not drive drunk. When you trade, you should not trade angry, upset, depressed, or afraid.
Lastly for today, learn to take breaks. During the day, traders in the Trading Room can often observe that I go quiet for a while. That's because I'm resting, meditating, getting a snack, exercising, or just enjoying my day. It is not easy, but, we must train ourselves to not get glued to the computer, watching every tick. It is detrimental to both your health and your trading if you're in front of the computer all the time. Save your energy and keep your mind clear for moments when the market really moves. Set alerts for yourself at certain important levels. Our members can probably attest to the fact that I often come back in to make comments at just the right, or "crucial", moments.
Speaking of taking breaks, I will mostly likely take a long weekend, starting tomorrow. First of all, my best friend from junior high school is in town. Second of all, after having such a wonderful day today, I want to be thankful and reward myself with a day off. Tomorrow will be volatile. If you're trading, you can probably catch quick trades on both sides. I'd let the first hour go, though, if the market bounces.
After you have been trading for a while, managing yourself is almost more important than managing your trades and the market. I'm going to start writing more and more about managing oneself, and I encourage members to ask questions in the Trading Room, Facebook, and/or make comments under articles along those lines.
Other than the above, have a great weekend, and, I'll be back with the Weekly Wrap-up and Market Forecast on Saturday and Sunday, respectively.
Good night and HappyTrading! ™