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01/18/11 Market Update

|Includes: AAPL, PowerShares QQQ Trust ETF (QQQ), SPY

01/18/11 Market Update


Market Update:

The bulls dug their heels again today as markets opened in negative territory but ended the day with a nice gain across the board.  Markets are definitely squeezing as much as possible out of earnings season as the grind up, melt up, lift, zombie pump, kool-aid high or whatever you would like to call it continues.


As we continue to melt up I am becoming a little more cautious.  I feel like we could hold these gains through this week and possibly into next but, volatility is still extremely low (near 2007 market peak levels) and while things are “good”, they just aren’t ”that good” to justify an unabated 10%-ish run over the last 45 days to multi year highs.  I feel like the market is getting a little tired. 


Stay cautious and use out of the money call credit spreads until confidence of real market trading, and not a melt up, return to the market.  That said, I expect a healthy up day tomorrow after AAPL’s earnings today so use strength to scale into such positions as credit spreads above the market


Areas of support remain unchanged at S&P 1280, 1260, 1250, 1225ish, and ultimately at 1175.  Resistance remains at S&P 1300 and 1310. 

BookingAlpha Update:

A new Iron Condor (composed of a call credit spread and a put credit spread) was opened today.  This trade took advantage of AAPL’s large move down on the “Steve Job medical leave” news.  The trade should only last through end of this week as it was opened with Jan options.  It could be quite a homerun if my analysis of the circumstances is accurate; roughly 40% on the trade if full profit is reached. 


This movie has played before (jobs taking a hiatus) and the stock released stellar earnings (again) tonight.  The stock has been overbought for some time and today was a nice buying opportunity.  This was the case with the last medical scare Jobs announced and I don’t think there is anything different this time.  The stock is a powerhouse and while I am not quite in the cult believing that AAPL will be $600/share by March, there are some awesome profit opportunities presenting themselves right now. 


The QQQQ is sitting on the short strike of the put debit spread and may require adjustment as expiration approaches.  The reason I am not adjusting the spread right now (but don’t worry, I will before expiration) is because the adjustments are holding their values in step with the current debit spread and therefore there is no rush to adjust.  However, again, I will adjust before expiration Friday afternoon (possibly using weekly options that are available on Thursday) or once I see a divergence in the behaviors of the adjustments to the current spread.  


The SPY Iron Condor and fully hedged ORCL positions are looking peachy (yes, peachy is a technical finance term) going into expiration Friday.


Stay tuned and happy trading!