[Weekend Summary]
Dear Member,
I didn't trade much this past week, but the EBAY trade that began as a bearish credit spread on Friday the 17th has worked out very well. You may recall I initially sold the Oct 95 calls (XBJAS) and bought the Oct 100 calls (XBAJT) for a net credit of $1.25 per share. I initially received $2.05 on the short leg (the Oct 95 calls I sold). EBAY was cooperative and started down shortly after I entered the position so I was able to buy back the 95's to close that leg for $0.90. I sold. You know the old adage "buy low, sell high." In this case, I sold high first then bought back low and made $1.15 profit on that leg alone. That profit was more than enough to cover the cost of the 100 call I had purchased so I am now in a position where I have an overall profit in the position and now own the 100 calls at no cost so whatever I can get for them is just more gravy in the boat. Right now, EBAY looks like it is forming a head and shoulders pattern which is bearish. If that doesn't reverse within the first hour on Monday, I will probably sell the 100 calls and add to my profit. Of course, if EBAY turns back up, I'll let it add more to the profit before selling.
My February 60 straddle on Harley Davidson is still in place. I am looking for a sharp move in price in either direction and/or a pop in implied volatility to make the position profitable. Thursday, HDI broke down through both a trend support and a horizontal price support which could be a very good thing. Yesterday, it couldn't get back above that support which well may signal a downward move. That could work in my favor.
Just when the markets looked like they may be beginning to move upward and break through some serious resistances, they fell back on the increased oil prices. The Nasdaq had valiantly tried to hold above 1900, but failed and, in fact, has formed a triple top resistance in the vicinity of 1920. We won't get an uptrend until that level is broken on some high volume. At the moment it remains in a trading range and has been in a downtrend overall since January. Ditto the DOW which has had successively lower and lower tops since January. It, as well as the SP-500, remains in a trading range. The SP-500 has a triple top near ll29.
The market seems more likely to continue down rather than up for the time being. I will tend to favor bearish plays or neutral plays until we get some indication of a reversal.
Trending markets are much easier to trade, but I can and do make money in these trading range markets. However, since the stocks and markets have a tendency to whipsaw, I do expect a higher percentage of losers than I would if the market was in a serious trend. The key is to keep the losses to relatively small amounts. In the book, "Market Wizards" the author discusses successful traders including Linda Bradford Raschke who reportedly was making about a half million a year. Her average trade gained $450 and her average loss was $250. In my view and experience, that is a great way to succeed in the market. It's the same way you eat an elephant. One bite at a time.
I hope you have a great weekend and a wonderful week ahead!
Sincerely,
Bill
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