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Cooking Up Something New
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Cooking Up Something New

by The MoleMarch 30, 2016

Scanning through yesterday’s comment section once again confirmed a gnawing suspicion of mine which I had developed over the past year or so: The majority of the people who visit here and even most of the hardcore steel rats who religiously have followed this blog for many years do not partake in the setups that are being posted. Clearly there are exceptions, but if I took a raise of hands today I’m certain that I could count on a single hand the ones who took yesterday’s EUR campaign or any of the juicy futures setups (e.g. ZB, ZM, or ZC).

Now true to my nefarious online persona I often have responded a bit snarky to what I perceived a tragic oversight on the part of my audience. After all I have now made it very easy to follow all live campaigns in the ‘current campaigns’ widget you see in the right sidebar. It allows you to follow all entries as well as the ensuing campaign management nearly live (there’s a 5-min interval refresh) any time of the day or night. Nevertheless participation in discretionary campaigns has remained pretty flat which is also reflected by the fact that I see are very few pertinent comments on a daily basis.

You probably remember the old saying: You can lead a horse to water but you can’t make it drink. And there’s a lot of truth to that. Because clearly many of you active traders and the symbols I keep seeing posted in the comment sections are mostly ETF or stock related. Although I report on stock index futures and their underlying cash indices almost every day I have never traded stocks and I probably never will. There are many reasons for that – mainly I don’t enjoy not being able to participate 24×5 – and being limited to a 7.5 hour NYSE session doesn’t really work for me. Also, there are just too many gaps on anything but the most liquid symbols. Trading on that level means shifting to a completely different timeframe/approach which just isn’t my cup of tea. Finally, I do enjoy a bit of leverage and I don’t want to deploy large amounts of my assets to one symbol.

Which is probably why I always very much enjoyed trading stock options. As a matter of fact back in the Wild West days of Evil Speculator (ca. 2008-2011) I posted option setups and tutorials on various strategies all the time. And perhaps not so coincidentally traffic and participation was hopping on a daily basis back then. People were posting symbols galore and there was a lot of debate about the greeks, about volatility, earning season, theta burn, vega crush, and what have you. Fact is that retail traders love their stocks, but they love trading stock and index options even more. It’s a huge market and suffice to say that the majority of them are losing their proverbial asses over the long term.

So this got me thinking. Apparently the number of traders who trade futures and forex seems to be limited, in particular in light of more stringent regulations over the past few years. So why not bring back some of that old mojo and once again post option related setups as well as related technical analysis? It is an idea I started mentioning to one of our affiliates recently. He used to be a professional options trader and actually started to get pretty excited about participating in some sort of option related trading program here at Evil Speculator. Obviously some of you guys could benefit from a wide range of option related tutorials but the best way to learn is by doing (with very small position sizing at first of course).

Introducing Jay

You may be wondering who this mysterious option pro is and I asked Jay to put together a quick intro:
Jay has 20 years of options and trading experience.  He got his start in the Wheat Pit at the Kansas City Board of Trade before moving to Chicago to become a market maker in stock equity options on the floor of the CBOE.  After doing a stint on Wall Street consulting with trading firms on how to implement options trading software, Jay moved to Arizona to pursue his MBA.  In Arizona, he worked for a hedge fund of funds where he was responsible for analyzing investment strategies as well as running the fund’s own options hedging portfolio.  After the financial crisis shook up the hedge fund industry, Jay moved into the online investment research business. He’s been publishing online research and trading strategies for six years.  Jay has successfully managed multiple options trading services for hundreds of subscribers during that time.
What both Jay and I share is a strong expertise on the flow of volatility and its impact on option premiums.  We both have studied the dynamics of volatility in exhausting detail detail and clearly there is abundant opportunity to capitalize off this knowledge in the options markets. So moving forward don’t be surprised if you see Jay pop by here occasionally to post a few setups or participate in producing educational material to turn you guys into stone cold option traders. Who knows – if it catches we may decide to take it all the way and launch a pertinent service. But I didn’t want to put the cart before the horse and first gather some feedback from my readers. Let me/us know what you think and what you feel would benefit you the most.

About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • randomuser6789

    This should be good.

  • http://evilspeculator.com Sir Mole III

    Get ready for the smack down!

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I look forward to meeting Jay.

    Now *this* is where you start to think about taking short positions.
    but tops are rounded, and you can count the weeks it takes to roll over..

    [BPSPX]
    http://stockcharts.com/h-sc/ui?s=%24BPSPX&p=W&yr=5&mn=0&dy=0&id=p06741839507

    -GG

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    I currently only trade SPY options based on funds available. I read your blog everyday and love it.

  • http://greenlander1.blogspot.com/ Greenlander

    Yeh I would like to hear what Jay has to say.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • ridingwaves

    Why would we not want to learn? Bring Jay on….

  • ZigZag

    I love options, but after years of working with them, have come to the realization that no matter how sexy your strategy, (ratios, strangles, strangles with back month verticals), you still have to get the time and direction right. Especially so because it’s so hard to apply a simple stop strategy. And if you have to get the direction right, it seems easier to just focus on futures with trend strategies.
    That being said, it would be great to have discussions combining trend and options strategies on things like /cl, which has its big report coming out in a few minutes. This is usually a good day to sell some /cl options because volatility has expanded after the report before dying down.

  • http://greenlander1.blogspot.com/ Greenlander

    I love the heavy contango when shorting VIX products. It’s a major wind at your back. Problem is not always available to short.

  • ridingwaves

    funny how CL loves Yellen but SI and GC not so much…

  • Tomcat

    Love to trade options especially as a seller. Would love to hear more.

  • http://greenlander1.blogspot.com/ Greenlander

    Yeh I really like selling spreads as semi-directional plays to benefit from theta

  • Skidmarkalot

    Love to read what Jay has to input,,,,, Great move Mole!!

  • kudra

    RW: You grab some ACAD?

  • Ronebadger

    I read, watch, learn from this blog every day. Not trading much, merely trading vehicles related to ES/SPX…so I look at your setups … but they’re not for me right now. Thanks Mole, keep it up!

  • http://greenlander1.blogspot.com/ Greenlander

    Getting closer to the 12 level in VIX. Will be entering initial shorts there. still holding TVIX short.

  • ridingwaves

    No…
    market cap is stretched right now and shorts look to be containing news…Baker bros are in at 35 so it should see that at some point in next 30 days if no market sell off

  • kudra

    I got some at 27

  • mugabe

    Me, too. The blog provides a great service, but I don’t take your set- ups because I’ve got all the bases covered to my satisfaction in my other accounts … at least for the moment.

  • mugabe

    I can’t believe you’re doing this.

  • http://greenlander1.blogspot.com/ Greenlander

    He’s done man. He needs to lose more money before it sinks in.

  • mugabe

    Yeah, the problem is I think his account is all the money he has, so we’re talking some very serious sh*t here.

  • http://greenlander1.blogspot.com/ Greenlander

    I don’t disagree but the fact it is serious shit will make it more likely it gets worse. Negative feedback loop.

  • kudra

    it is. I guess i took a new position too soon.

  • ridingwaves

    where is your stop?

  • kudra

    26

  • BKXtoZERO

    Mole such a nice idea regarding Jay and options idea. I personally don’t have access to options but I am once again impressed by your site, services, info….. everything. Great idea. Thanks.

  • topedge

    I will echo echo what the others have. I enjoy your blog and am grateful for you sharing. Look forward to Jay. Thanks.

  • ridingwaves

    I think the shorts main goal is to keep it under the 100sma at 27.40…you might be able to buy lower so if you get positive print by the end of the day sell and wait….

  • http://greenlander1.blogspot.com/ Greenlander

    TVIX short stopped out for 2R. still holding GDX short

  • Mark Shinnick

    Bot TVIX in the 4.30’s

  • randomuser6789

    At least you have a stop in place. Don’t you dare get in the habit of moving your stop down.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I like the low price, but I want it CHEAPER. cheaper than sand.

    EDIT: I’m making Wal*Mart look like Mother Theresa. and Uncle Scrooge a Philanthropist.
    http://stockcharts.com/h-sc/ui?s=%24VIX&p=D&yr=0&mn=6&dy=0&id=p74923197734

  • BKXtoZERO

    so you found some shares to short finally?

  • ridingwaves

    Kudra, why not buy NRZ with 15% yield? I posted here at 9.75 and now get higher price and yield…Ex-divi is 4/1 I believe.

    sometimes boring is profitable

  • mugabe

    presumably it will plunge when it goes ex-divi with that sort of huge yield. that’s what usually happens, isn’t it?

  • ridingwaves

    probably..

    but its closer to 52 wk low than high, so good place to average down afterwards..hard to get that yield anywhere…I could care less if it goes down as long as divi keeps coming…in fact I will buy more on any move under 10.50 as chart is looking strong now, fighting resistance now but above 12 is clear to 14 if it breaks out…

  • http://greenlander1.blogspot.com/ Greenlander

    Yeh I got some TVIX yesterday and when I tried adding no more shares. Maybe 1/3-1/2 of the time I can get them. For some reason I can never find UVXY shares to short.

  • ridingwaves

    push down is over on vix…..time to take some money from the bulls next week…

  • Round we go

    you might be sitting on a three bagger.

  • Mark Shinnick

    Its a shot…so fickle. Still actually wishing for 3 handles.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    nonsense.
    you just don’t turn it off

    https://www.youtube.com/watch?v=gLo-ylNPXyE

  • Round we go

    you have to be super super patient with the laggy vix products. you have to stick to your setup and your setup should have wide margin for error. remember its a lotto ticket. you have a good entry. be patient.

  • Round we go

    so did you post when you bought QID at 39?. everybody here would have ripped you a new one if you did. but i do not recall such post. but I tend to tune you out cus you make no sense to me, when you dont post charts nor setups. just trading drama stories. then to sell at 30 which is the bottom of the range and is my bottom price target for last purchase.

  • Round we go

    where’s the chart? where is the risk to reward setup?

  • Mark Shinnick

    Its especially true about acknowledging the likelihood for error in this wily instrument. Consequently, my setups (which are all about inflection points) define for very tight stops with new entries….or upon reaching expected objectives.

  • Round we go

    if you think you can do surgery with tvix, good luck. i used to think I knew inflection points but the tape gets tricky, so in a bear market, i give huge sway in market miss pricing in the short term.

  • ridingwaves

    they might play around with it tomorrow but volatility should pick up coming into earnings, fed and May negativity

  • Round we go

    you said it was cheaper than dirt when it hit 14.

  • Mark Shinnick

    Yeah…always amazing about all our differing nervous systems and styles.

  • ridingwaves

    you can get in vix instruments after the initial move….and still make money

  • Round we go

    and stock buy back black out that everybody knows about.

  • Mark Shinnick

    Yes…excellent point. This form of filter is very saving to both mental and dollar capital. The best sloped gains from vol seem to be after it has already begun to move.

  • Round we go

    if you look at the daily chart below, the range is 13-32. so 13-17 is the optimum buy range.

  • BKXtoZERO

    over the years I feel like my patience has grown and I have learned to better space out my entries on this one. That said, this manipulated market seems to be casting off once in 50 year type situations more often so getting run over isn’t hard.

  • Mark Shinnick

    This global asset thing has screwed so much up….for years now very big time. With normal corrective activity being so suppressed, the distortions so enriching a relative few are going to make even more hell to pay for a long time for everyone else. The Vol problem is faced with the similar relative pricing quandary as luxury homes did against the Tulip bubble. With TVIX, we are essentially playing dodge ball while facing a stiff wind.

  • Mark Shinnick

    BTW… Out of TVIX at 4.55 after 4.60 objective coupled with other tools.

  • tandaradei

    Hi Mole! Thanks for the post. At the risk of making myself sound like an idiot but… how do I read the current campaign charts? Yellow dots being stop loss are most obvious, but the rest not so much. Sorry if there is a tutorial somewhere, but I just can’t find it.

  • http://evilspeculator.com Sir Mole III

    I just wrote this to a potential sub and thought I’d share it with you guys:

    On top of the regular option theory and all that jazz I’m actually going to produce a systematic approach for trading options. Meaning – take for instance a bear put debit spread. A lot of people trade those but nobody really knows what the odds are. Just like an automated system with rules running against forex or the futures those types of options strategies have a particular edge, they have standard deviation, a certain expectancy, win/loss rate, etc. – you get my drift. I am going to start plotting this stuff as we move along so that we can refine our position sizing approach. Because if we figure out that the win rate is 60/40 for instance then the position sizing we would employ is different than for instance what we would use for 40/60 odds. Clearly that is completely uncovered territory for most retail option traders – even the experienced one’s.

  • http://evilspeculator.com Sir Mole III

    Good to know – thanks for checking in, Sharon. How experienced are you? What types of option strategies to you employ?

  • http://evilspeculator.com Sir Mole III

    That damn exchange rate – screw the Yellenator.

  • http://evilspeculator.com Sir Mole III

    Well, that exactly will be our job – picking the right strategy for the right market period. If something looks like it’ll push sideways then we may do a condor, otherwise perhaps a credit spread or debit spread – depending on volatility.

  • http://evilspeculator.com Sir Mole III

    Selling options is tantamount to picking up pennies in front of a steamroller. It only takes a one time stumble to find your account flattened.

  • http://evilspeculator.com Sir Mole III

    Don’t worry – I’ll keep serving up the forex and futures setups as well. That’s my bread & butter.

  • http://evilspeculator.com Sir Mole III

    No worries – easily explained:

    Blue line = theoretical entry (fill may vary, especially on thin futures contracts)
    Red line = initial stop Loss
    Yellow line = trailing stop.

    There you go.

  • Round we go

    so, now did you get shaken out of a three bagger? will see.

  • Mark Shinnick

    …still hoping to see some 3 handle :)

  • ZigZag

    That would be excellent!

  • KTrader1

    Thank You Mole. I started trading Options last year. My preference, selling puts. However, I am open to learning new strategies.

  • Time Bandit

    Billabong you around?

  • Time Bandit

    FBOW, Shorting Crude via small opening position in SCO at Market On Close. Stop will be somewhere above Today’s /CL High of $39.85

  • Edd

    1/3 position MOC, DWTI 158.37 ISL – 147.11

  • Time Bandit

    Looks like we’re on the same page Edd. :)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    back from lunch. Mmmmm – lime cheesecake.

    close up yer books.
    I never thought my ema would act as support.
    I did look at previous examples where serious down moves start with 3 consecutive red candles.
    This week it was a one…two….UPPERCUT.

    [BPSPX]
    http://stockcharts.com/h-sc/ui?s=%24BPSPX&p=D&yr=0&mn=6&dy=0&id=p83673509861
    -GG

  • Edd

    Don`t think I can go far wrong following your example Bobby!!
    This is simply coincedence , DWTI and UWTI are two of my ponies in the stable. DWTI gave me a buy signal at yesterdays open which I chose to ignore due to yellen day. Sidestepped todays early morning downdraft which would have triggered stop

  • Time Bandit

    Thanks Edd. We’ll see how it goes. :) I’m actually a tad early on this one but after /CL giving up all of today’s gains, I believe it was the right thing to do. I think Billabong was getting close to making a move as well.

    IXE (Integrated Oil Companies) are flattening out and getting closer to a short by my lens and I’ll be buying some ERY when it’s time.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    14, 13, 12.
    what’s a few digits between friends?
    😉

  • Edd

    ERY, yuck! I bought at Open yesterday on a entry signal at 23.21, still not sure why I did this one when I had already decided against an oil short due to event risk. I was .08 cents from my stop at close and foolishly held. 1.25R loss selling on this mornings gap down open. I have been trying to avoid all news, events, etc and simply trade chart price action. I never traded FOMC days on my 5 and 10 min systems. Looks like I may have to consider doing the same across the board on my daily system. 22.23 on ERY in the morning triggers another entry for me.

  • http://greenlander1.blogspot.com/ Greenlander

    Closed out GDX short for -1/2 R and too SPY short at close.

  • http://greenlander1.blogspot.com/ Greenlander

    Didn’t go into this short but not a bad setup in QQQ for potential pullback

  • Kishore Kumar

    This may be of interest to gamblers:

    http://www.marketwatch.com/story/the-millennials-looking-to-get-rich-or-die-tryin-off-one-of-wall-streets-riskiest-oil-plays-2016-03-30?link=MW_popular

    Incidentally, UWTI had a 10:1 reverse split on March 14.

    Moreover, it is an ETN and not even an ETF.

    Quote from the above article: “For the past year, the gamble of choice for WallStreetBets followers has been the VelocityShares 3X Long Crude ETN known by ticker as UWTI, which tracks futures contracts on WTI crude oil CLK6, +0.05% (ETNs are unsecured debt notes, so investors can lose everything if the underwriter goes bankrupt.)”

  • Kishore Kumar

    It sinks in when one hits the bottom. It takes longer if the pockets are deep. But even a “bottomless” pit has a bottom. Deeper the pit, harder the climb back out of it. For the real hard core, getting buried in the pit is their only “salvation”.

  • mugabe

    too soon? read what you said yesterday about reevaluating and staying away from the market. you’re out of control. keep your money safe.

  • http://evilspeculator.com Sir Mole III

    Always remember that an ETF is a fund and an ETN issues you notes. So it’s a promise to pay – if shit hits the fan and the ETN blows up you may get pennies on the dollar or nothing.

  • http://evilspeculator.com Sir Mole III

    See below – my main argument against selling naked options is that it’s tantamount to picking up pennies in front of steam rollers.

  • http://greenlander1.blogspot.com/ Greenlander

    Yeh I’ve been in the pit and know where he’s headed

  • http://greenlander1.blogspot.com/ Greenlander

    What I would love to see is some stuff on campaign management when one is short options. That’s where it gets really interesting. I see tons of stuff on set ups but very little on campaign management.

  • Time Bandit

    SIPC will cover losses (not all) from the Bankruptcy of Member Broker Dealers NOT THE BANKRUPTCY OF INDIVIDUAL COMPANIES THAT ISSUE STOCK.

    “Not all investments are protected by SIPC. In general, SIPC covers notes, stocks, bonds, mutual fund and other investment company shares, and other registered securities. It does not cover instruments such as unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, currency, and interests in gold, silver, or other commodity futures contracts or commodity options.”

    – See more at: http://www.finra.org/investors/your-rights-under-sipc-protection#sthash.9vYHCFZS.dpuf

    http://www.finra.org/investors/your-rights-under-sipc-protection

    The Markets are a Worldwide Casino. Las Vegas Casinos have stricter government regulations than Worldwide Stock Markets in General. Las Vegas provides entertainment and will Comp you if you are a “Whale” such as players that occasionally pass through here. The Markets don’t give you anything but an opportunity to make some money but only if you can pass through a MASSIVE Learning Curve.

    So as the old saying goes “if you want a friend, get a dog” and if you want ultimate safe investments maybe stay in cash and have multiple weapons on hand. :)

  • Time Bandit

    If you buy stock in GE, Bank of America, Capital One or any of the companies in the S&P 500 isn’t this a gamble as well? How about a safe “Investment” like Fannie Mae?

  • Time Bandit

    Edd, a couple of things from my perspective. One of the things that I found while doing a 15 Year back test on Crude using Daily Charts was that it was impossible to weed out what days were event risks or not. Therefore, I do not take a position off the board just because of a Fed Day threat etc. These things have a way of evening out over time and often an announcement exacerbates a trend that’s already in place anyway. I might however delay putting on a position if like this week, I’m coming back from vacation, in 100% Cash, and a large event threat is coming up within the next day or so.

    Another thing is because I’m using daily candles going in, I’m also using daily candles getting out. So as long as I have access to my platform, I wont use hard stops and will wait until near the close to see if price is still through my stop. I’ve been chased way too many times early in the day before the daily candle is near completion only to see price rebound in my favor before the day is over. Of course there are exceptions when there is a massive running spike but usually I can wait until the end of the day. Anyhow, I’ve found that this helps me stay away from many whipsaws.

  • Billabong

    And … If you want to be a millionaire start with 10M.

  • Billabong

    Yes … I spread it out between oil companies and SCO. Folks need to be careful with SCO and look at the ATR and size positions accordingly.

  • Round we go

    payout is of paramount concern in a crash. be liquid as you can.

  • Edd

    Thanks much for this advice Bobby. I am still working out the kinks in my transition to the daily time frame. It is amazing how one vehicle like oil will trade so poorly in my short term system as to be untradeable for me, yet in my daily system it actually trades better for me than equities like RUT or Q`s. I keep track constantly as to the amount of drawdown on every trade entry my system generates. This is simply a % of atr. I have found that generally speaking 95% of my system generated trades will not exceed 75% of 1R in drawdown. Thus 5% of the time I will get whipsawed. This is the foundation of my stops and I monitor this stat constantly as part of daily reviews. I am still working on MFE stats for my daily system.

  • Time Bandit

    Sounds like your plan has all the ingredients to be successful. I think this proves that even though we can’t control what the markets do, we CAN control how we react to what the market does. Well done!

  • Edd

    I was where you were at one time past and worse. Working to be where you are now my friend. Thanks

  • http://evilspeculator.com Sir Mole III
  • http://www.linkedin.com/in/sharondsessions/ Sharon

    That would take a while, but here goes.

    I have traded off and on since the 1970’s. First with DJI options, then OEX and now the SPY. I have studied with The Elliott Wave group under Robert Prechter back in the 1980’s. I traded for a living in SanFranciso as a novice trader. But the 1987 crash changed all that. My indicators were all changed by the crash and by the time I developed a new strategy, my funds had run out.

    I have studied options strategies such as strangles, etc as a student at San Francisco State Univ. in their Masters of Finance program. And, every so often, I begin to dabble in the SPY options market as I have time and funds.

    I only allocate a maximum of $500.00 to my trading account and depend on my accountant career as my support. I would love to make trading my full time career once again and your website is one of my support systems. Thank You so much for your wisdom and humor. It many times causes such great laughter to begin my day with.

    Sharon