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Evil Lair Alert!

by MoleJuly 21, 2011

I’m seeing a huge divergence in two key market correlations. Maybe it’s just a disturbance in the evil force and we’ll have to follow up in a day or two – but it could be a harbinger of a nasty correction in equities.

Either way, Mr. Bigglesworth does not approve of today’s tape – which is why I have no choice but to issue an immediate Code Orange Evil Lair Alert:
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Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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And here’s your culprit – that NLBL on the spoos was busted with some vehemence and it looks like as if we’re pushing toward 1360. Meanwhile copper dropped like a rock and did a dead cat bounce (sorry, Mr. Bigglesworth – I watch my language now) at its own NLSL. Maybe this is the extend of it and copper will continue upward tomorrow. However, if you were long the spoos yesterday or this morning I strongly recommend to take profits now.

BTW, that divergence on the Zero Lite is also not exactly confidence inducing. It’s summer – the tape is prone to whipsaw and this session doesn’t really feel right. Let’s take profits while we can and wait for further instructions.

Cheers,

Mole

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About The Author
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.
  • http://practicalt.blogspot.com/ Gold_Gerb

    First?

    the BP chart MUST reverse up today, eh?

    (GG has a turn date for tomorrow, but not too confident in his T planting.)

  • http://practicalt.blogspot.com/ Gold_Gerb

    intraday post update – now THAT will draw in the regulars.

  • Anonymous

    Also note it is free for those who have an expired Zero/gold subscription! Yeah you can’t get into the Zero, but you can get the posts. So hurry leaches one and all, take a bite and start to suck!

  • Anonymous

    Mole, I would like to ask you a question, probably you’ve already answered this many times, but I was wondering how do you get the NLBL and NLSL on your charts, I mean what technical pattern do you follow? And how do you place your stop-losses? I appreciate your help and think this website is one of the best on the web!

  • http://thebhbgroup.com TheBHBgroup

    the Es looks like an upthrust is possible today…we need to see the position of the bar at the close.  Careful doing anything here.

  • http://thefxspeculator.blogspot.com Onorio

    EURJPY 1H retest variation sell 

  • Anonymous

    I hear ya and as usual I don’t trust anything about this market/casino.

    Earlier today, I was able take profits and roll ITM “Dynamite” SPY Weekly Calls that were due to expire tomorrow into much cheaper OTM SPY Weekly Calls that expire next week.  This cut my Net Positive Delta by about 60%, lowered/extended my Theta but still gives me enough Gamma to rock and roll if this run continues a little longer.   
    Today’s Weekly Option Roll was the third one this week so next weeks Calls are definitely Freebies.  That’s not to say that I want to throw free money away. But if I’m going to err, I’ll take my chances on a little error on the Insanity of this market.  Betting on Sanity sure as hell hasn’t worked for more than a couple of years now.   

    BTW, as usual I’m hedged so if the market wants to shit the bed tomorrow or next week, that’s perfectly fine with me. But as of this moment the MO MO is on the side of the Bulls and if I have to be Net Long, I’m going to use Weekly SPY Call Poker Chips. 

    So yes, I’ve already booked profits on this weeks longs but left a few newer poker chips on the table to ride.  And whatever will be will be.   🙂

  • nyse

    Your updates are real helpful. Thanks. When you are hedged, what are you playing? Vol?

  • http://thefxspeculator.blogspot.com Onorio

    And 4H pinbar

  • Anonymous

    That’s a good question because I think it was harder for me to find a decent hedging strategy than to establish my own rules for entering and exiting a Long or Short Swing Trade.  

    Hedging with Options proved to be far too costly and too cumbersome for me because of time constraints as well as having the Option Market Makers Jerking the VIX around and forcing (IV) VEGA Risk.   

    I began messing around with Weekly SPY Options (and originally used them as hedges)  about three weeks ago.  As of today I’ve closed out 13 Weekly Option Trades with 8 Wins and 5 Losses and a Net Gain of $2 to each $1 Loss.

    In the mean time, my primary directional trade in Long or Short ETF Stock was doing mediocre at best.  So I thought why not reverse this?  Some might think I’m crazy, but today I’ve been long Weekly SPY Call Options as my Primary trade and my Hedge has been Short SPY Stock.   

    The key here is to know for each $1.00 Movement in SPY, how much  your combined portfolio is going to move and in what direction.  So it doesn’t matter if you are short SPY Stock as long as your Combined Delta is positive enough due to a sufficient amount of Long Weekly SPY Call Options.  Your account should still increase in value if SPY goes up even though you are short the SPY Stock.  You also need to know the relationship of Gamma to Delta.  

    The Think or Swim Analyzer is a big help in figuring out what my net Delta etc, would be before I make the trade.   

    All and all, it’s been a very good day today and lastly, one might ask what about the Short SPY Stock?  Well of course that’s in the red.  But all things being equal, the S&P could have gone to 2,000 today but my weekly options far out number the actual Short SPY Shares.  And the Delta on the Options would have eventually reached 1.  This would mean that I would owe a lot of money on my short stock but the gain in my options would surpass what was owed on the short stock by many times over. 

    I hope I answered your question.  🙂 

  • Kudos

    Very interesting. I love learning to think in new ways. Thank You

    Edit: I take it the bid/ask spread on the calls aren’t significant enough to worry about?

  • http://pulse.yahoo.com/_N2BRXG3E35GXBXZTEBSXLUSDCM B

    So how did Mole’s setup playout at close?

    I’m wary about calling this top. I’ve been burned by days like this in the past year. Huge up day and the headline at Marketwatch says “Stocks up on Financials” and I’m thinking what financials? Not US banks that’s for sure. While the weakness lately does not seem to fit the script of the Fed’s machinations, today looks like a messege that the fix is in, get in front of the train at your own risk. I hope I’m wrong, I have cash for long term investment sitting around collecting dust. Floating at these elevated valuations waiting for a reasonably priced entry is getting tiring.

  • http://pulse.yahoo.com/_N2BRXG3E35GXBXZTEBSXLUSDCM B

    So how did Mole’s setup playout at close?

    I’m wary about calling this top. I’ve been burned by days like this in the past year. Huge up day and the headline at Marketwatch says “Stocks up on Financials” and I’m thinking what financials? Not US banks that’s for sure. While the weakness lately does not seem to fit the script of the Fed’s machinations, today looks like a messege that the fix is in, get in front of the train at your own risk. I hope I’m wrong, I have cash for long term investment sitting around collecting dust. Floating at these elevated valuations waiting for a reasonably priced entry is getting tiring.

  • Anonymous

    You’re welcome.  Most Weekly Spy Options that are either ATM, or somewhere near the money are very liquid and most only have a penny difference between Bid and Ask.  Occasionally there might be a 2 penny difference but that’s it – at least on the options that I trade.

    I’ve also found that it’s better for me to wait a little while in the morning because even on a gap it can take a while for these to get rolling.  

  • Anonymous

    Speaking of the “Evil Lair”, this scene reminds me of what this market smells like.   🙂

    http://www.youtube.com/watch?v=QRt2_OLY3Ho

  • http://practicalt.blogspot.com/ Gold_Gerb

    comment counts (while joining) are not correct.
    maybe its just me, worth a shout out.

  • http://practicalt.blogspot.com/ Gold_Gerb

    Hedging with Options proved to be far too costly and too cumbersome for me because of time constraints as well as having the Option Market Makers Jerking the VIX around and forcing (IV) VEGA Risk.  

    ‘Word’.

  • http://practicalt.blogspot.com/ Gold_Gerb
  • http://practicalt.blogspot.com/ Gold_Gerb
  • Anonymous

    I am surprise that they let it get under 50…I guess they only massage the important numbers.

  • Anonymous

    Non leveraged inverse ETFs can help your money from collecting dust and you dont have to pick the top exactly. Once we have the correction just sell your inverse ETfs and buy miners gdx gdxj. Sleep easy. BTW mole has been pretty darn good at keeping the rats safe!

  • Anonymous

    China has been down since 2009. The Chinese dont want their own stocks. Should tell you something.

  • Anonymous

    On a break of Moles 1370 ES, is key. On a break, mortgage the house and go all in. 1500 is the next stop.
    For me, I am short unless a break of 1370. 
    (I tend to trade days and weeks,as opposed to minutes and hours.)

  • http://evilspeculator.com molecool

    I don’t understand – please elaborate.

  • http://evilspeculator.com molecool

    Never ever said anything about a ‘top’ – I said that it’s probably good to take profits as the summer can be sick churn fest that frustrates both sides. So, I’m double paranoid (if that’s possible).

  • http://pulse.yahoo.com/_N2BRXG3E35GXBXZTEBSXLUSDCM B

    I do use the short ETF’s. Not so much since last fall and getting bitch slapped by Big Ben. Thus my hesitance to against the powers that be when they are sending a message. IMO today was a message. That’s what my comment above was about. Still though we’ve taken this train just about as far as it will go. Fundamentals DO matter eventually, and the valuation of this market is priced for perfect recovery. Which clearly isn’t happening so I wish it would just regain its senses so we can get back to putting money to work in enterprises that promise a good return. Quaint idea I know 🙂

  • Anonymous

    Mole, daily zero update please?

  • Anonymous

    If you want to fight the Fed just buy gold on every pullback. Wait for the next Bretton Woods and sell your gold. If your plan is “putting money to work in enterprises that promise a good return” then forget about trading/investing. It will never happen. Ben Bernanke has failed miserably. He took the nation to the brink of disaster and we are still in one stock markets not withstanding. That will change too. Soon he will find it difficult to debase the currency also. Should be fun to watch a strengthening dollar against the wishes of the Fed.

  • Anonymous

    If you want to fight the Fed just buy gold on every pullback. Wait for the next Bretton Woods and sell your gold. If your plan is “putting money to work in enterprises that promise a good return” then forget about trading/investing. It will never happen. Ben Bernanke has failed miserably. He took the nation to the brink of disaster and we are still in one stock markets not withstanding. That will change too. Soon he will find it difficult to debase the currency also. Should be fun to watch a strengthening dollar against the wishes of the Fed.

  • http://evilspeculator.com molecool

    Done!

  • Anonymous

    Is 74 the ground floor for DXY?  or just one of the stops on the elevator?  (Rhetorical question….right now.)

  • http://practicalt.blogspot.com/ Gold_Gerb

    Opened webpage – 0 comments listed – actual comment count 4

  • http://practicalt.blogspot.com/ Gold_Gerb

    Hat Tip to Mole on the Orange Alert…

    really!

    it’s July 8th – repeat.
    http://i55.tinypic.com/4hrrf7.png

  • Anonymous

    http://www.marketwatch.com/story/senate-rejects-house-budget-cutting-plan-2011-07-22-1048340

    Those from The States: are you gonna default like Greece or what now?

  • bshah

    CMG is another AZO.. price manipulated the best. on small volumes . …. heads .. even with missed results and dropping good $14/- it has crossed all time high.. wow…

  • bshah

    Can we ? … it will make the geniuses in capitol to wake up.. 

  • Anonymous

    /SB is above nlbl, pushed a pin up to 31.5, thru upper BB100 at 31.4, 

  • bshah

    anyone with the thought that these bastards going to run the mkt high at close and then beloved politicians will say on sunday night, we have a deal.. so monday off we go.. f..ing mf…s

    i can’t imaging how much money they are spending just discussing bloody debt thing, which they don’t care @ anyways.. enjoying tea in gold trimmed cups… wow.. who is bearing this cost btw..?

  • Anonymous

    ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ

  • bshah

    everyone?

  • http://practicalt.blogspot.com/ Gold_Gerb

    UPDATE: 3 hrs later

    BAH! SPX 3 candles down, 3 candles up.
    glanced at the UUP, no Fair!

    bring it!

  • Anonymous

    I’ve burned 100k over 26 months.  My guess is buy gold. I said that to my friends two years ago, and the went for the long shot.   

    I no longer trust my own judgement. 

  • Anonymous

    My experience of guessing wrong on how the market would react to the political action of 2008 and further speculation of Yes on Tarp, No on Tarp and then finally Yes on Tarp is preventing me from trying to guess anything about what this market does based on political action.

    That being said, I would like the current noise or lack there of to be removed concerning the Debt Extension so we can move on one way or the other.  

  • Anonymous

    I didn’t understand governments where willing to destroy currencies.

    Stupid me……. 

  • http://practicalt.blogspot.com/ Gold_Gerb

    SPY – what a Mamby Pamby Market.
    (gawd)

    http://starcasm.net/wp-content/uploads/2010/02/Ermey.jpg

  • Anonymous

    It’s gonna blow soon!!!!!! (It kinda blows now…..)

  • Anonymous

    As of 2:30 PM, the Last 10 completed 15 Minute SPX Candles have had about a 2 Point Range and has been Flat Lined.  

    There’s not much to say about it other than perhaps they are servicing some of their HFT Computers.  

  • http://evilspeculator.com molecool

    You bought gold 26 months ago? So you should be in great shape!

  • http://evilspeculator.com molecool

    Buy the rumor – sell the news.

  • Anonymous

    Consider we have two major news out – Greek debt resolution n US Debt ceiling (near certainty). So, is this a July 2010 scenario or is it August 2008?

  • http://practicalt.blogspot.com/ Gold_Gerb

    I suppose if CS was here, he’d have a nice post.

    😉

    http://i51.tinypic.com/20zbkwm.png

  • Anonymous

    I’m not sure this is really “major news” especially on the Greek issue because this was about the 11th rally that we’ve had regarding a Greek Bailout this past year.

    Regarding the US Debt Ceiling, if this is “baked into the cake” and there is a last minute change and it does not go through then we would have a Convict Scott “Expected Event that does not happen” and all hell could  break loose.

    Or if the Debt Ceiling officially passes, it could be a “Sell the News” event possibility that Mole mentioned.

    I guess we’ll all find out one way or the other.   🙂 

  • http://evilspeculator.com molecool

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    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨
    ¨°º¤ø„¸  N E W  „ø¤º°¨
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  • Anonymous

    No, I told my friends to buy gold.  I went short.

  • Anonymous

    So, if you had to name your strategy, would you say that you are doing a form of Gamma Scalping?

  • Anonymous

    It is more a bit of Vega and gamma scalping while making sure Theta doesn’t get you in the end, thus the disciplined entry of the exit orders. The Vega gets way out of wack, along with Gamma on these options when the overall market moves a large amount because the underlying asset(index,stock) is actually itself valued using so many different derivatives, not just a stock itself that pricing these assets are in a whole “black box ” of their own. The options pricing , frankly, becomes a crapshoot on big day moves and can give an advantage to limit buyers in strategic program. Thekiss of death for this strategy is to THINK you are on the RIGHT side of a trade and want to ride it into glory, Our friend Theta will eat you alive as these values decay at a inordinate pace if the market does nothing. You need the snap back reaction move the merket tend to give after large moves oce way or another of late, even if temporary. Nimble is the name of the game.

  • Anonymous

    Yes, that would be true and I think that Sterl99 also has a good handle on the movements in general.  The key words here are Nimble and as in everything else in this business – money management.  

    I’ve tried to “ride to glory” as Sterl99 said and lost and taken profits too early and could have hit a home run.  Now, if I’m on the “right side”, I’ll take profits early and roll to cheaper further OTM, this way if the trade keeps moving in my favor, I’ll make a little more and if the trade reverses, I would have still made some net profit from the earlier trade.  

    BTW, this is still a work in process but so far it has been decent.  

    P.S 

    For some strange reason Disqus does not send replies to my e-mail.  I’ve tried to fix this and just can’t get it to work.  There are a few others whose e-mail replies don’t work either.  I was able to find your reply by looking at “The Dashboard” under the Disqus Icon.   That’s the only way I can find replies after a New Post is made.   

     

  • Anonymous

    “can give an advantage to limit buyers in strategic program” I think you were eluding to this once before. Do you mean that someone with a “correct calculation of fair pricing” goes in an sets a limit order targeting an advantageous “unfair price”? And once filled, attempts to sell out at the “fair price”?
    Or something else?

  • Anonymous

    I’ve been creating lop-sided calendar spreads. They sell near term puts and are long all kinds of puts and calls further out. It’s kind of a nice vega hedge (lopsided long), while I try to “ride to glory” on a tide of burning theta. 

    Your previous comment that the weeklies don’t have too much bid-ask spread makes me want to dabble in them too.

  • Anonymous

    Sorry I am slow in responding, gut I bounce back to the real job. What I mean is that on days where there is a large move in the market , say up , and I have signals I follow on broader scale saying the market is getting toppy and has had a nice run with a string of large up day moves with volatility, I start to put in some bids on these types of options at certain strikes , maybe a set of bids where I feel I can catch a few of them as the market stretches further, MAIN POINT NO MARKET ORDERS , and since I do not sit and watch all day or days, I may leg in to several over a few days. But when (if ) there is a pause or turn, as long as I already have orders to double, triple and so on my money on each set, again, since I have little extra time to sit and watch, I more often than not catch those reactive moves back ( down) where the spike in premium on these types of options can get outright ridiculous. I am happy with the returns I can get, often I may keep an extra lot and stretch the last option or two into the 5x more but that is well into playing with house money by then. Key is always to get to break even before you ever think of stretching a rule. Over time I have found that this is about the only way I can consistently make $$ buying options, otherwise I quit my day job and go back to living on the SHORT side.