Zero Indicator
Now Reading
Spasmodic Thursday Wrap Up
45

Spasmodic Thursday Wrap Up

by The MoleMay 26, 2011

The first hour of today’s session session was a bit trippy – and it was served with the obligatory bear trap which I hope all of you subs avoided:

The key entry today was a bit subtle but it was there. When the spoos looked like they’re about to drop off the edge Zero Lite was completely unimpressed and painted a divergence. Those setups are never a guarantee of course but if you see them go in there and simply set a stop a few ticks from the prior low.

Geronimo wasn’t missing out on the fun today and nailed a nice long scalp.

Cheers,

Mole


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.
  • volar

    I really like geronimo- quite brilliant.  I gather the Long and short scalps are different setups, but I like the way it works. Unique. 

  • Anonymous

    hey rats how goes it?

  • http://evilspeculator.com molecool

    Everyone taking an early weekend, ey? Can’t blame you rats… but I’ll pop in tomorrow to see if anything exciting is in the works. Don’t hold your breath however as it’s going to be a long weekend (Monday is off).

  • Anonymous

    Thanks
    Mole for your daily video replays.    Your added comments are insightful
    and full of educational material.   Hats off to you, you are a great
    educator!!!!        Also, the hot pic’s don’t hurt either!!!!!

    Keep up the humor,,,,,,

     

  • http://evilspeculator.com molecool

    Thanks for the kind words.

  • Anonymous

    looks like yesterady’s climb to this base camp was very exhausting and we will be taking some rest today.

  • Anonymous

    Mole did you update the DZ yesterday?  It doesn’t look like it.

  • Anonymous

    The crowd is moving nicely today, except the dollar…Oil is not participating on the upside too much…huh?

  • tradingmom

    Picture changing here I think…sigh.  SPX daily over 50 dma now and challenging 20 dma.  20 DMA no longer clearly pointing down.  Many individual charts w/ “bear flags” saw the bear flag fall apart.  (AAPL — some weird bullish engulfing thing going on there today, SINA — broke up ouf of bear flag above resistance, CAT — maybe I could make the case that the daily has a mini bear wedge going on, but the last 2 days’ candles are bullish and we had a gap up today even though still under major resistance, CSX gapped up over resistance) but, volume today is thin.  Rumors of something out of China over the weekend (aren’t there always?) And lots of chatter about the market “sniffing out QE3.” I really would think that we would need to see a correction of more than this 4% business that barely took us below the 50 DMA before QE 3 was baked in, but these days who knows.  Maybe BB will turn out to be determined to keep the market up as that’s the only thing he’s accomplished.  Then we’ve got all the regular arguments about “month end rebalancing / new money coming in at the beginning of a new month” crap for today and early next week.  Some big Martin Armstrong date is coming in mid June (the 11th or the 13th I think, forgot to double check) but that doesn’t have to mean its stock-market related.  The top in the housing market came and went without an immediate change in the stockmarket.  I think I need to step aside.  Have a good weekend, everyone.

  • Anonymous

    Bucky looks like it’s well ucked

  • Anonymous

    relax, we haven’t even closed the gaps, gap closing is a normal market behavior.

  • Anonymous

    Keep an eye on Mole’s red SPX-Hourly downtrend line.  Those hourly trendlines have been pretty reliable, not perfect, but something to watch.  Also, one can make a case for a nice downtrend channel as you connect the 3 bottom points on the hourly.  Markets tend to move in uncanny channels….until they don’t . . . don’t you know…

  • Anonymous

    Yup – hedged my long near today’s top.  Will let it play out Tues and decide by end of day.  I could see us break out of this possible bull flag, bring in more longs and then see it drop again 1/2 way back.

  • Anonymous

    TLT is interesting.  Broke thru the 200 yesterday – opened on it this am and is now higher.  Can bonds and the markets go up together?

  • volar

    IMHO

    I have seen Bonds move with stocks about 4x in recent years

    all 4x there were rumors of the fed doing SOMO or POMO and poor economic data

    is this time different? Who knows, but obviously the market is looking for QE3

  • http://evilspeculator.com molecool

    Yes I did.

  • Anonymous

    Really?  SPY closed at 133 yesterday.  Daily shows 132.38 which is the previous day’s close – No?

  • Anonymous

    Mine TLT is flashing the number 96.30 and is down 0.21%. What TLT are you watching?

  • Anonymous

    Same.  I’m looking at daily – longer term

  • Anonymous

    oh, you mean SMA, not the value. i get it now.

  • Anonymous

    xactly

  • OllyVaradi
  • Anonymous

    I’ve had to do some soul searching regarding the Option Market and as Clint Eastwood said in the Dirty Harry Movies, “A man’s got to know his limitations”.  

    I have worked with options for a number of years and have had some success but for the past few months it doesn’t seem to matter what I do.   I have found more ways to get screwed by this Option Market then I ever thought would be imaginable.  

    The last 10 Trading Days have been the “straw that broke the camel’s back” for me.   I had believed that I was set up very well.  (I prefer to swing trade over a period of days)  During these 10 days, the VIX has been in a range between a high of 20.03 on May 23 and a Low of 15.36 Today.  Well let me tell you what a 5 point move in the VIX does.  It either makes you look like a Genius or a Babbling Idiot depending on which day you bought your options.  

    Plus the Greeks that I’ve often spoke about?  Well if you go front month, Theta will eat you alive especially if you don’t get your directional move right away.  Also Front Month Gamma can take you down quite rapidly if you are ATM or ITM and the trade goes against you.  Then once your Delta get’s reduced it takes a move twice as big in the opposite direction to get the Options Healthy again.  

    So then I say OK no problem, I’ll go out a month or two.  So what happens?  Theta is not so bad because you have longer to go but VEGA absolutely kills you if the VIX goes down.  Plus the Gamma is not as powerful and doesn’t move in your favor as quickly as the Front Month Options would.   I could go on and on but outside of possible prophylactic protection, I am done with Options.   

    Now, I’m going to  prove that the market has driven me absolutely crazy. After doing some back testing, I now believe that when needing Leverage, SDS and SSO are a better deal for shorter term swing trades than using Put and Call Options.  The Pro Shares are designed to fuck you over too but by charting the underlying Index in this case the SPX even if I roll from SDS to SSO and Back Again it’s still cheaper and less stressful than to worry about the VIX and the 4 Major Greeks.  Plus SDS and SSO can be traded in A/H and the SPY Options can not.  

    So as much as I hate to admit defeat.  My battle with the Option Market is over.   

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

    I come from a heavy quant background.  Still build option models for clients, but I quit trading options bc it took to much freaking time out of my day, and I did not get enough return to warrant that.

    I only play options now when the VIX is very very low or when it is very very high and it gives witht my swing trade strategy.

    I understand exactly where you are bobby.

  • http://evilspeculator.com molecool

    Time for some tough love as you have not been paying attention it seems. Look at this chart:

    http://content.screencast.com/users/evilspeculator/folders/Jing/media/2d70e7e2-7c26-4112-8018-d3f33c586a72/00002571.png

    It’s very simple, my friend – don’t buy vega when we’re near the upper boundary!. This is a nasty little game MMs are very good at playing, in particular right before a long holiday. Although we have been slightly recovering a 25% drop in volatility is absolutely uncalled for – but nevertheless we see this shit happen all the time. Instead of fighting it – anticipate and use it!

    I have on many many occasions talked about vega squeeze and it’s a major component in the calculation of premiums that wipes out option buyers (i.e. retail schmucks like us) on a regular basis. So the knowledge has been passed on but maybe you weren’t listening.

    Look, if you really want to play it very short term you can use weeklies which behave a lot more like little futures contracts. OR you can play the futures which do not suffer from any vega or theta burn. I have no idea why retail traders are so scared of the futures market. I have never seen a futures contract go to zero – but I have seen stocks go to zero many times – OTM options go to zero every three months! 😉

    It would be sad to see you go Bobby as you have been a good contributor. And it would be tragic if it was due to you not paying attention. Both Scott and I have been very active here in conveying the basic survival techniques that should have kept you out of making mistakes like this.

  • http://evilspeculator.com molecool

    I understand him too but I don’t get why he would have bought theta when the VIX was approaching its upper boundary.

  • OllyVaradi

    Good on you Bobby. It isn’t defeat when you move away from an instrument that doesn’t love you back. Good Lord, I started with FX back in the day, frightened to death of it now.

  • http://evilspeculator.com molecool

    I might want to add that no matter when he got those contracts – as soon as he saw the VIX push outside the BB he should have pulled the cord, no matter if he had puts or calls.

  • volar

    yup. to quote you “instead of fighting it – anticipate and use it!”

    those are words to live by… as soon as i started treating the market like a game, and understanding how the game was played, my trading improved notably.

    The market rapes people every day, and it does a good damn job. Most of my trading revolves around how NOT to get raped, not how to make $$$.

  • Anonymous

    I like the phrase “outside of prophylactic protection” because that is mainly what I use options for, so I mainly buy puts on things like FAZ when FAZ is low. In such a situation vega works to my advantage.

    I also am curiouse about the “needing leverage” because I use options to lever down. If I am willing to bet 20k on whatever with a 10% stop (2k) I will check to see if I can get the same amount of shares that 20k would have bought with 2k worth of call options. The amount of money I put into an option trade will always be equal to or less then the size of my stop if I just bought the underlying instead.

    At that point I am pretty much in the death or glory mode, but it is all the same 2k risk and I don’t have to worry getting sold out on a gap below my stop and losing more money then I planned for. Calls on things like SDS/FAZ/ZSL put VEGA on your side if they move your way… if not I don’t freak about the few extra cents per share that I may be loosing due to declining VEGA/THETA, that’s (imo) a small price to pay to avoid those awkward times when my underlying may be down to a few % points above my stop and I must choose to shut it down or risk an opening gap below my stop.

    But I do avoid calls on the ultra longs, you always get those with a jacked IV.

    I think you are so right when you say SDS/SSO are better for short term swing trading… hey they move at delta one… but like they say on the “tube” mind the gap!

  • Anonymous

    Don’t give up just yet BobbyLow. We are overdue for a big move and we may see it from next Tuesday. I got kicked in the balls lately for underestimating the retracement, but I should have known better that it is a bad idea to short before Memorial day. Distribution is going on now. In the recent downtrend we have breached some critical levels but have not seen any serious selling yet. These last days move up is a better shorting opportunity. Being long now is like juggling with knifes.

  • Anonymous

    I don’t think he is stopping trading altogether, just options. And yep, love them weeklies. On thursday not a lot of action wider spreads, friday is a great time to sell ’em, and monday is the time to buy. I also found that (on FAZ at least) options close to the money will carry about .10 or so in time up until an hour to expire. So really any loss in time value is insignificant compared to the movement of the underlying.

    Anyway, happy holiday, and — I have been a subscriber for a bit so I hope this ain’t outta line — how about some booty shots EOD?

  • http://chartsandthat.blogspot.com/ ultra

    Must admit I gave up on the options market quite a while ago, but never say never. Always admired your full-on explanations of options position and strategy, even when I didn’t totally understand what you were on about.

    Time for a breather though, perhaps?

    I just saw a chart I liked and bought a single ticket. Fakeout hammer new low on the VIX so maybe I won’t get vega-raped. Risk is small and capped, though, so I’m quite looking forward to seeing.

  • Anonymous

    Thanks Mole.    

    I’m glad to know that my contributions are appreciated.  

    The main reason that I needed to stop trading options is that I’m tired of trying to run my trading model while dodging bullets from the MM’s fucking with the VIX.   I know that my model works and it’s set up for both entry and exit points.  It would have went against my model to pull my contracts before it hit my stop.   Also, I’ve found it very difficult to trade options with my model because of everything that option prices are made up of as well as the time constraints.  

    The funny part of all of this is that I’ve begrudgingly accepted the presence of POMO leading to a controlled market.   But then to fight the Option Market as well is like fighting a war on two fronts.  I ain’t going to do that.   

    I wish that I had the type of qauntitative  skills that you, Volar, Scott and others have but I don’t.  And I appreciate Volar telling me that even he has difficulty with Option Schemes. 

    On a Positive Note, I haven’t quit yet.  

    My Model is still telling me that I should be Short.  It is not as strong a signal as it was 3 Days ago but it is Still Short nonetheless.   I opened a small position in SDS today.   And I still have a position in UUP (The UUP Position is hedged)  

    In any event, at least I won’t be concerned about the next 3 Days of Theta Burn over the long weekend.    :)

    Again thanks for your help.   

  • http://evilspeculator.com molecool

    You got it :-)

  • Anonymous

    Well, I guess men left for the w-e and boys were left trading.

    Enjoy the mind rest. 

  • Anonymous

    Cool thanks … some people do like to trade on “moon” phases ; – )

  • Anonymous

    Thanks to all that replied to my post.  I really appreciate it.

    This is one of the toughest games around and you guys that are in it know what I’m talking about.   This is a great group.

    Have a nice weekend everybody.  :) 

  • OllyVaradi

    I’d prefer to see thinly-disguised, quim, flange and beef curtains. Not sure about boots mate. May be that’s an American thing.

    Here you go:

  • http://evilspeculator.com molecool

    Take a few days off and clear your mind. Let’s get back to playing the tape on Tuesday. If you want to be off the options – fine – there are a myriad of ways to bank coin in the market. Options, stocks, futures, FX – those are just vehicles you ride and while some of us love a Toyota Prius others are happier with Porsches, trucks, bikes, etc. – to each his/her own.

  • http://evilspeculator.com molecool

    I’m putting together a wrap up – so don’t all run off just yet! 😉

  • http://evilspeculator.com molecool

    Usually that’s what happens – although the boys often get a bit ahead of themselves.

  • Anonymous

    New post …. between my legs ; )

  • Anonymous

    Bobby,

    There is a part of our psyche which is very attracted to complicated methods. Dont forget that the human brain evolved to solve problems. 

    This is the driver behind the magnetic attraction of elliot wave (I sure do wish that it worked, unfortunately it doesnt work well enough for trading)

    Sometimes when I face emotional pain over losses, my brain interprets this as physical pain. At this point my head jumps in, hijacks my reality and stops me from seeing certain things, makes me think everything is fine when its not, or actually takes over the trading process.

    To me this comes out as a period of bad trading after I make an initial small mistake.

    To you it seems to have come out as buying vega when you did.

    This is all part of the process. You have ignored the psychological aspects of trading recently, maybe its time to close that hole in your game.

    As an aside, futures are much easier than options btw.