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The Day Equity Options Went Full Retard
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The Day Equity Options Went Full Retard

by MoleJanuary 22, 2012

Some days are boring- and some make seasoned traders say WTF? Friday was a WTF day for me—the market is calm as can be, and I am starring at option data that raises the hair on the back of my neck. Sure the tape had absolutely ZERO OPEX volume- and CNBC touts are saying, “Sideline money is coming in…”  but my radar screen is screaming retardation.

Seasoned option traders are not idiots – they gauge risk better than anybody else. Option trading is not for the faint of heart – if one does not understand the game- one is as good as dead. As of this week option makers are not selling puts or selling deferred IV, while call volume is surging.  Sure this stuff happens in December and these indicators can be early – but Santa is gone…

In any case, for every retail call buyer there is a seasoned call seller. There were nearly 100mm net OCC equity calls less puts over the last 30 days — drink the kool-aid if you want. Skews and IV time spreads are utterly absurd, VIX and VXV are both trading outside bollinger bands, and call buying has gone from beartard to bulltard. Yes the trend is higher, and yes we had volume capitulation on the low, and yes there are Euro shorts, but gamma has been falling like natty gas in many markets.

Last week, the equity option market went full retard IMO- here is a well analyzed look.

First here is  look at IV time spreads. IV time spreads help put the VIX in perspective and seasonality helps to show the strong seasonal tendencies.

C’mon- this is retarded- and frankly bearish as crap in the short-term. Notice that even in 2008 December expired in a predictable value- even with a VIX that traded north of 50.

This next chart is a spin off of the first chart that shows the seasonal tendency is lower- not higher here. Or contango/time spreads should be narrowing not widening…

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More charts and cynical 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 or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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You see how unseasonal this move is? We are not only outside of Bollinger bands on the daily chart- but it is outside seasonal band too. There is a reason for DEC and APR to have retarded sentiment- its called holidays. Listen to the time spreads- they are telling you that IV is not going to stay this cheap.

I never fight the tape in December- remember all my posts? This is the reason- we know the market goes retard in December- but FEB?  FEB is a bad month.

And 1 more chart for perspective.

Clearly the VIX is cheap relative to deferred implied volatility.

Now just to be utterly clear-  FEB sucks.

and here it sucks again.

Now I am in the process of beating a dead horse… consider my old probability of a VIX(buy)/SPX (sell) signal.

This chart will be confusing- but the key here is that Friday gave us an SPX sell signal (or the first step) and the market tends to give us and SPX buy signal in MID-FEB. This simply means the VIX has a tendency to go from the lower Bollinger band to the upper bollinger band- which does not sound bullish to me. On a net basis it is the 3rd most bearish probable set of weeks for the SPX.

I know many do not believe in seasonality- but seasoned option’s traders do… and they also don’t listen to CNBC- Just fyi.

Now more sentiment- unreal put/call ratios to end the week.

And go figure- sentiment has gone from full bear retard to full bull retard in terms of option volume. Unreal.

I want you to take this chart and then run it next to the stat “signal” chart below. They jive to say the least.

Also consider short interest…. the shorts have been squeezed….

What a squeeze- glad I have been on the right side of this….

Now to some consolidated market maker data- my black swan index- uses 3 market maker (smart money) variables.

And just some quick stats on some the variables I am looking at.

The max loss/max gain ratios are not something to be overlooked IMO.

And a chart for perspective.

Ok now how do we play this irrationality?

Well there are multiple ways- but my idea might be unique.

First lets look at EURO shorts.

I know what you are thinking- well why would I want to short Equities with this type of crowded trade in EUR and the recent trend change in bonds?

Well I may have your answer. Euro may be due for a short squeeze, and equities are due for a retail retard flush. Well to me the pair is a bit retarded- maybe time to sell the pair?

Now nothing is simple- especially when one looks at the EURO IV.

What does this tell me? Well it tells me there may be shorts in EURO- but the option market is complacent. So maybe the EUR wont get a short squeeze…. what are the odds EURO IV makes new lows? Seriously- that one is hard to contemplate, given that we all know what the end-game is over there.

In any case IV is dropping across the board and many indicators are suggesting a correction may be looming. Now I admit that many indicators I follow, such as sentiment surveys, are not extreme; I also admit many sentiment data is early in picking a correction. That being said, I prefer the options market as an indicator over surveys.

And I am not the only one who is taking a contrarian viewpoint. Here is what SentimenTrader said last night.

BOTTOM LINE: Last week was a WTF day for a seasoned trader. A variety of indicators such as put/call ratios, vix time spreads, vix skews, vix (SPX sell) signals, and seasonality are all saying risk is to the downside in the short-term. If you are in the options market- I suggest you do not short gamma and vega. I would also add that Corn IV has a similar story- we are also testing extreme bounds that make any vega/gamma buyer excited. One has to sit in awe as SPX, EUR, and even Corn IV all go to dangerously low- even retarded levels, and yet, global financial risks rise each day.


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Cheers,

-Volar


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.
  • Joe_Jones

    One word: WOW!!!

  • Fibz
  • Anonymous
  • Anonymous

    Wow Volar what a post!

  • Anonymous

    Fantastic post!  A huge, hefty ditto to all the wow’s already posted.  

    I am curious about one of your concluding statements, “I suggest you do not short gamma and vega.”  Could someone translate that into laymen’s terms for a somewhat neophyte to playing the options market? (I’m not asking for a definition of vega or gamma. That, I understand. I’m asking the practical implementation of such a strategy. And example, perhaps.)  Thanks.

  • Fibz

    I would bet these sort of statistical anomalies become more frequent as the computers get smarter…

  • Anonymous

    Great post as usual, thanks Volar… very intriguing.

  • volar

    Dont sell/write options right now. 

    Or consider debit spreads as opposed to credit spreads if you are into spreads.When one goes long a put or call- the premium is comprised of theta (time), Vega (IV), and gamma (call it moneyness/potential delta)

    So a long option is long vega/gamma (regardless of delta). The dilemma is that IV is correlated to a negative delta…. so all complications aside going long IV is going short stocks for the most part…. 

  • Anonymous

    Great post Volar!

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

    that’s a sure sign of a TOP.
    http://images.askmen.com/women/models_100/113_katie_pricelarge_image-1.jpg

    or is it a bottom?
    I’m sure both ends are fun.
    what were we talking about?

  • Jose Lemma

    Jack Nickolson with implants? What the hell?

  • Anonymous

    domed (brick) house

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

    Great post Volar.
    you realized you just flashed the equivalent of a Hindenburg Climax during the Mole Omen?
    😉

  • Anonymous

    Now that’s a post!

  • Anonymous
  • Anonymous

    TOS did an update today, and that sometimes breaks the Zero. Mole, if you’re listening, can you double check that the Zero didn’t break today?

  • Anonymous

    Good thinking boomer

  • Anonymous

    ZeroFX seems ok.

  • Anonymous

    Yes, but the ZFX runs on a different system. I’ve just noticed in the past that a TOS update can break the Zero. It doesn’t always, but I figure that enough of us are using it to trade from, it’s nice for Mole to double check when he’s still awake.

    On another note, I’ve noticed that IB’s Trader Workstation updates seem to be breaking my machine. I’ve been having to restart after a weekend in order to get it to work. The java version will load, but not get a good network connection. A restart seems to be all that will fix it, and it never used to be a problem. I’m running on a 1 yr old MacBook Pro, OS 10.6.8. (I’ve heard that TWS has issues with Lion, so glad I’ve not updated yet.)

  • Anonymous

    I see. Maybe these guys should switch to web based trading via browser and put the software on the cloud. That would make stuff run on every platform without problems.

  • Anonymous

    Agreed. I like IB’s execution and the fees are very reasonable, but I hate TWS. Hard to use, and a steep learning curve. I usually run a paper trading copy of TOS at the same time, just to have better charts available.

  • http://www.facebook.com/people/David-Spears/100000424557856 David Spears

    *Patiently waiting for DEFCON notice*

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

    uh, Mole’s in Vegas.
    hope he automated it well, and it isn’t broken.

  • Anonymous

    Great explanation.  Thanks!

  • Anonymous

    My man! This is a truly, staggeringly awesome post.

    I spent a good deal of time realizing that my price based stuff hasn’t got an edge right now, but my subconscious is screaming at me to stand aside from longs.

    I’m completely in awe of is work, and we are privileged to have you blog here

  • Anonymous

    HG below Friday’s low, Bearish Engulfing seems to work. AUD/JPY and ES aren’t following so far, but we got an hourly NLBL and a NLSL on AUD/JPY. Might be good for a short in the next couple of hours.

  • Anonymous

    Good thing we got the math genius on our side!

  • Anonymous

    Sounds good. Working on it.

  • volar

    thanks for the compliment (Exp. from u mate)- sad part is im not sure it is predictive- but certainly odd times

  • Galazkiewicz

    So, no taking a break either direction of the inside bar?

  • http://thebhbgroup.com TheBHBgroup

    As a seasoned veteran money manager I am in awe from your post.  I had to read it several times to catch all of the details.  Truly high quality work that we rarely see in any of the investment bank’s research tools that I have access to!  

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

    I posted the SPY/SLV chart several weeks ago.
    something to add to the excitement?
    equities have had there fun since august relative to the poor man’s gold.
    http://tinypic.com/view.php?pic=10f6io1&s=5 

    -GG

  • Fibz

    free stanford class on probabilistic graphical models might be interesting to some rats:

    http://www.pgm-class.org

  • Anonymous

    Very cool. Thanks for the link.

  • Joe_Jones

    AUDJPY celebrates the year of the Dragon with fireworks!
    😉

  • Joe_Jones
  • Anonymous

    Thanks Fibz! I just signed up for it. You cannot beat free. So why not right?

  • Fibz

    wow, a real journalist… it’s like seeing a black rhinoceros.

  • Anonymous

    Here comes the second set. Wonder if this one will play out.

  • Anonymous

    I’m currently having no problems with IB’s TWS.  Using MacBook Pro also, but with OS 10.5.8.

  • Anonymous

    Nope. 2 failures in a row.

  • Kudos

    Nat Gas touched its NLBL and failed to hold breach

  • Joe_Jones

    Last chance to buy some cheap puts

  • Anonymous

    Bond Trade has flipped.

  • Joe_Jones

    VIX is up today

  • Joe_Jones
  • volar

    tick has yet to go below 0… unreal

  • Joe_Jones

    I feel a great disturbance in the Market, as if millions of voices suddenly cried out in terror and were suddenly silenced.

  • Anonymous

    Concur…I have 1 negative TICK close on 1min chart and that was at 9:31am.  Thats 44/50 minutes positive TICK so far. I dont remember seeing this strong a reading, but I won’t use it as a ‘get long on pullbacks’ day because of these lofty levels & your post.

  • Anonymous

    The market it like Roy Hobbs, it can do nothing wrong..dumped rest of NG..
    maybe this is all about the O Man speech tomm. night…right before fed speak…2009, he gave the clue..what say you O man

  • Kudos

    zero is telling an interesting story

  • Anonymous

    Dude, you’re stealing my material LOL

  • Anonymous
  • Anonymous

    DeMark calling for a top: 
    http://www.bloomberg.com/video/84650154/

  • Joe_Jones

    maybe I should have replaced “cried out” with “squealed”
    😉

  • Joe_Jones

    nice

  • Anonymous

    that was cool..youtube is whats real about the internet…one big canvas for all..you supply the colors and brush..

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

    uh, is today full full retard?

  • Joe_Jones

    Seems to follow the same indicators as we rats. His views bullish views on the DAX are somewhat in contradiction with a market top though.

  • Anonymous

    Yep, saw that. My concern now is that more people are jumping on calling this a top/correction and we know what happens then. Also zero edge looks like it is on suicide watch.

  • Anonymous

    “Also zero edge looks like it is on suicide watch.”
    And that is different than any other tiem exactly how!?! 😉 :) :p

  • Anonymous

    Volar – I think I am going to have to re-read that post about ten times to understand half of it, but a tour de force nonetheless!  I’m thinking TVIX may be worth a visit at this juncture as it could easily double if we get a correction soon.  I know, it tracks badly, has all kinds of warts and most people think it should be avoided at all costs.  Apart from those risks though…. 

  • Anonymous

    ZL is interesting, pushing down on a flatline. Not a regular accurance is it?

  • volar

    given that i expect contango to narrow- VXX actual makes sense- presuming you are expecting the market to fall (aka VXX= bull spreading the VIX futures)- as for the market falling,that i cannot tell u

  • Fibz

    I think we’re nearing the point where the leveraged bull ETFs will begin to contango.

  • Joe_Jones

    Lunch time coming. Maybe the MM will try to suck in some juicy pink piggies one last time before dropping into oblivion? 😉
    I think we also need to see a failed retest of the high before seeing participation in the drop.

  • Anonymous

    Would have at least expected a VWAP test.

  • Kudos

    I bought some putters this morning on the divergence with the zero after reading this post. Would love to see some confirmation on the zero, otherwise this distance to WVAP makes me uneasy

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

    So far this looks like one uuuuugly daily candle.

  • Joe_Jones

    Agreed. Still expecting it. I am 100% short right now. Might scalp a bit intraday just for fun, but not changing the core of my position.

  • Anonymous

    ZL really not really confirming this correction uh?

  • Anonymous

    Buy The Dip!

  • Fibz

    “In a video message sent to supporters
    Saturday, Obama said the speech will lay out an economic platform that
    includes ‘American energy, fueled by homegrown and alternative energy
    sources.’”

    http://thehill.com/blogs/e2-wire/e2-wire/205691-the-week-ahead-obama-to-map-out-election-year-energy-agenda

  • Anonymous

    Hourly ZL is showing a heck of a negative divergence from last week though.  I agree the five min zero remain unconvinced by the DIP but equally unimpressed by the bounce back.  I guess it all depends on your time frame.

  • Anonymous

    I was just thinking that the hourly zero signal looks like a symmetrical triangle, and we’re getting close to the apex. I think it’s hard to say at the moment, but whichever way it breaks should give some follow through.

  • Anonymous

    Copenhagen or Skoal   ?

  • Anonymous

    I don’t understand that comment at all. Ah well nobody said I would understand everything.

  • Anonymous

    Seeing a H&S pattern developing and waiting to see how it goes intraday.

  • Fibz

    Meaning that leveraged bear ETFs should outperform leveraged bulls in the medium/long term regardless of market direction.

  • Anonymous

    Mind a question? Of course what would really help TVIX is if things go into backwardization, last time this happened VIX was rocking.

    Is backwardization more likely to occur when the VIX is going up? I ask because the first time I saw it (I am sure it occured before during my trading life but I was not aware of it — contango/backwardization — then) was under those circumstances.

    I think (not sure) what happens is a spike out of the normal bounds on the spot VIX jacks the front month more… the back month is cheaper because of the revert to mean tendancies of the VIX? If true backwardization more likely to happen with a popping VIX.

  • volar

    Yes VIX backwardation is correlated to the VIX.

    I have not read the TVIX prospectus- so I have no comment there.

    However the VXX does buy VIX futures, and thus is highly correlated to both the VIX and VIX backwardation

  • Joe_Jones
  • Anonymous

    good point :)

  • Anonymous

    o.k. thanks. I see how you are using the term now. I also get the “regardless of market direction part”. What I don’t understand is that contango/backwardization occur with neg or pos roll yield caused by “rolling” into the next months futures. Not all ETFs are constructed with futures. That is what confused me. Only ETFs constructed with futures should be affected by the phenomenom you describe. At least IMO — If I am wrong about this I can only conclude I have know idea what contango/backwardization mean. I would not be surprised if that was the case, but I sure hope not!

  • Anonymous

    When you see a pattern, would you be so kind to state the chart to which you are referring?  Thanks!

  • Fibz

    I think you’re right… probably not safe to generalize. I was specifically thinking of TNA/TZA.

  • Anonymous

    The Zero hourly SPX chart shows it developing. It is better defined on the 15 min though.

  • Anonymous

    I see it – and the peak (head) is Thurs morning vs right shoulder today (hence divergence).  Neckline seems to be around 1310 or so using the hourly zero.

  • Anonymous

    GLD and SLV at interesting spots.  Put a 100 SMA on and take a look.

  • Anonymous

    Short /ES @ 1310.50. ZL looking good with down sloping trendlines and divergence.

  • Anonymous

    Thanks Volar.
     
    I will descibe roll yield and the VXX, not for your benifit, but just to be sure I am on the right track.
     
    Say you have 20 trading days in a month. At the start of the month VXX has 20 futures contracts exp. one month away. 20 trading days x 20 contracts = 400. One day passes and now only 380. So VXX sells one front month and buys one next month contract returning the total to 400. If the back month is more expensive (in contango — if I am useing the term right) VXX will get a neg. roll yield. If it (back month) is less expensive (backwardization) VXX gets a pos. roll yield.

    Last time VXX got a pos. yield was when the VIX went rocketing up. Is VXX more likely to get a pos. roll yield when The spot VIX is up big? Like I said I am new to these concepts and only have the most recent example of backwardization. It seems to make some sense though. The front month would be more sensitive to the spot VIX, the back month then gets cheaper (relative to the front month) as people belive the VIX will revert to mean. i.e. the VIX spike is not expected to be around by the time the back month futures exp. Thus backwardization, thus pos roll yield.

    Two simple questions: 1) am I on the right track with contango/backwardization-neg/pos roll yields and useing the terms concepts correctly. You can just say yes… or tell me back to the drawing board. If not back to the drawing board then, 2) Is backwardization (since we are talking VXX that means between the first and second month, but I do understand it could happen between say 3d and 4th month) more likely to occur during a VIX spike (as it did last time)? If so is it for the reason I described?

    BTW thanks for your contributions to this blog, and I am really happy to ask an expert such as yourself the above questions. Am I the only one who thinks Evil Spec has some of the best comments give and take? This is the only place that I feel I learn something from the comments.

  • Anonymous

    Yep, should be good for 10 pts:)

  • Anonymous

    I think we are all on the same page regarding the bulltard readings and waiting to get short. Maybe now would be a good time to give ourselves a mental check and make the bull case? I see: SPX nicely riding the BB, but not crossing, riding in the volume channel of the last year with room to go up, RSI at the overbought line but not over, weekly SPX above SMA support but with room to run in BB, VIX up a hair. What I would really like to see is a blowoff in price really pierce standard deviation to match sentiment and volatility extremes. Worst case is we work off this overbought situation sideways, setting the floor for another push up. That would leave no gains for the bears and good chance of getting caught flatfooted. What do you guys think?

  • Anonymous

    BTW does yesterday qualify as a hammer on the daily SPX?

  • EvilTrader

    We may be headed north, but short term there will be a risk cleanup, and wont be small. Can start as early as tomorrow, who knows ? pick a trigger news and we are done.

  • Anonymous

    I think we all agree it’s a “done deal” and THAT is what has me nervous and making sure I’m not overlooking anything.

  • Galazkiewicz

    No, a lower low was not made on Friday.  Met the other criteria, though.

  • Anonymous

    Tinfoil hat time.  “They” are toying with us on the VIX. Lower BB is currently at 18.52, and VIX is at +/- 18.58. Plenty of time to push it back outside the BB.

  • Anonymous

    VIX sell signal coming in to play, I believe: close outside BB on Friday(step 1) and higher close today (step 2); but still damn close to BB. I think VIX has to close above BB to stay in effect. Is that true? I see 18.52 reading on BB with VIX 18.58 with 15 minutes left.
    EDIT: good observation Capt. I just finished typing this when your post popped up so I just coattailed you.

  • Anonymous

    Yes. We need to close inside the BB for step 2. Plenty of time to toy with us.

  • Anonymous

    Toy with us exactly. lately we have been getting a lot of drops in the morning, then turn on the bots and end green. The bears are getting Rope a Doped. Still though took half a normal position short SPX. Will see over the next few days whether the other half is warranted.

  • Anonymous

    I notice that we got the trend day alert today, and right about that time /ES started to drop. Dropped all the way to just above overnight support, and THEN started the trend up. It’s not the first time I’ve seen this happen with a trend alert, so one definitely needs to have other indicators for confirmation.

  • Joe_Jones

    We have Step 2

  • Kudos

    Is there a third step, like the vix buy signal, a higher close than today, right?

  • Anonymous

    Exactly, just reversed…just in time for APPL earnings tomorrow after close. 

  • Joe_Jones

    Correct. A higher close on VIX tomorrow would be STEP 3, confirming the risk off signal 

  • Anonymous

    Anyone playing NG?
    It managed to end the day into a dry volume hole. Right now it’s struggling to get over it so to continue the short squeeze tomorrow.
    I don’t have access to overnight futures, I played long on Friday and got out today, close to the end of day session. Then I reversed with a smaller bet on a retest down to maybe 2.37. I might be wrong and will cover first thing in the morning. This squeeze seems to be more powerfull than I thought…

  • Anonymous

    nice work!

  • Fibz

    not related to trading, but since there’s some programmers here and ninjatrader/zero use C#, had to share this. GPU processing with .NET:

    http://www.tidepowerd.com

  • Anonymous

    Thanks, but wasn’t my intention to brag :)
    I am actually looking for opinions. Never saw /NG mentioned here, and I agree it’s erratic. But I went in after careful consideration on Friday and now I think I was to quick to jump off. If anyone has insights I could use it, because even I was on the right side I don’t feel satisfied. My exit was based only on the volume hole right in front and the fact that a real move should follow Scott’s findings… always get a retest. Maybe it does not apply to squeezes…

  • Anonymous

    mmmmm…tasty dip!

  • Kudos

    You shouldn’t feel satisfied with the trade, yes you made some good coin but where is the setup that you used and could it be replicated? I doubt you had a stop in place because NG was down to a new low this morning before it rallied hard today. If you were in it friday you also were not likely following a shorter term setup because that too would have shown failure this morning.  That is on the technical perspective. If I am wrong, and you did have a stop but it didn’t triger because you dont have access to overnight futures than I take it all back. 

    I don’t know where you work so you may have some fundamental understanding of gas or other knowledge. I gave NG some very close consideration Friday as well, looked at inventories and they were very consistent with the 52 week average, price has only been lower on two occasion in the last decade IIRC, and oil is doing the exact opposite. I didn’t see much of a seasonal bias that would help, I saw that many times NG bottoms out towards the end of the summer.

    As far as mentioning /NG on this blog. In general I think most people caution against trying to pick bottoms, especially on commodities since they can continue a trend without mean reversion for much longer than equities. I want to get in /NG and I still might. Today it breached two NLBL, 2.485 and 2.542. I will likely wait for a retest of those as they are now support, I would also set a stop loss below those net lines. Waiting for Net lines to be breached can cause you to miss out on potential profit, but it will save you from betting on reversals to early. If you don’t know what net lines are, look it up on the Cheat sheet section for an explanation.

  • Anonymous

    Hey Kudos, thanks for taking the time for such a lengthy reply.

    Let me answer one by one…

    First, I do not have access to futures and I was using an ETF which actually is also double leveraged. Comes in pairs, HNU and HND in Toronto. You can imagine this double leverage and combined with NG volatility makes your stops in need of a wide slack or they are worthless… The wide stop makes me play way less than others would. So, in this regard only, I am not so dissatisfied.

    I do not have any valuable fundamental info on NG, unfortunately. What I used for deciding to entry was:
    1. The last Commitment of Traders report showed some more inclination on the bullish side from the producers. The swap dealers are still net short.
    2. Friday showed some relent on the down side.
    3. We reached the low set on Sep 09

    I admit all these are not in the line of our learning here :) but I am attracted to taking money out of the NG market, it being looked so rigged and all… (If I can do it there I can do it anywhere – pardon the pun)

    So, aside from the COT I did not have any fundamental insight. More than that, I am totally aware of the high expected temperatures this week and was purposely betting on a squeeze, knowing everyone was hypnotized by coming ugly to be storage report.

    I was alone on NG and was looking for some fellow insight. Again, the coin I got is not really satisfying to me since I don’t really think I can reproduce it. That’s why the question. NG seems to be really apart from other commodities in its violence.

  • Anonymous

    On what time frame do you use the NetLines? The way I have them calculated on the hourly it shows me a NLSL at 2.413 on the hourly. It happens to be right above the volume hole I expect to be reached tomorrow on a retracement. It is where the price turned back up today after the first wave up pull back. I shorted HNU for overnight on a much smaller amount than yesterday. I still have to put my stop in, it was close to the end of session :) Shorted HNU at 5.06 and can afford to let it run to 5.50 without visible pain. That would clarify the decisiveness of the squeeze being above the volume hole ending at NG 2.65.

  • Kudos

    No problem on the long reply. Been thinking about /NG all last week and did a bunch of research on average inventories and historical prices and seasonality. I wish I started small and sold some UNG 5 puts which was on the money friday and was paying about 30 cents or roughly 6 percent, and then waited and accumulated. Now I think i’m going to wait for a retest of the 2.485 NLBL and will either buy /ng with a stop set below, an option that I don’t like as much do to volatility and lack other support like key MAs. The option I will likely take is to sell some OTM puts as volatility is relatively high on UNG, a small position, and if we get a failed retest of the bottom I will add to the position. 

    You can use net lines on many time frames, the longer the time frame the more important it is, it is up to you to decide your time frame. I find them more valuable on the daily charts. At some point they expire, I think its 5 days but i’m not sure. As far as hourly net lines go, I would pay even less attention to net lines on commodities when the main exchange is not operating and there is little volume. The 2.413 is a net line, but so is the low of the candle above at 2.448… again, these are less reliable for the reasons mentioned above.

  • Anonymous

    Have been playing the NQ. This market is not looking tired, and I guess that inverted head and shoulders still has to play out, so that means higher prices in the short to mid term. We shall see i guess. 

    This europe news is just teh best B.S. to watch isn’t it. “we are going to collapse, no we are not, oh hang on…yes we are….no we…” oh brother…give me a break. The bailouts are coming. Mark my word!  http://www.forecastfortomorrow.com

  • Anonymous

    I have been trading /NG on the short side and went long 3 different times today.  Actually on Friday /NG went outside the lower BB and closed back inside which is bullish and dictating a temp bottom.  I keep kicking myself for selling my long position a little too soon at EOD as it ran .08 in a matter of minutes which is alot when you are trading futures.  My thought is that /NG will continue to squeeze tomorrow as it closed close to the high.  FYI /NG is currently trading at 2.614

  • http://evilspeculator.com molecool

    Cool – thanks!

  • Fibz

    also found this AI framework called ‘encog’ which seems to integrate with ninjatrader easily: http://www.heatonresearch.com/ninjatrader

  • Anonymous

    Wouldn’t it be lower but still in the BB for a Sell signal?

  • Anonymous

    For the equities sell signal, the VIX needs to 1. Close below the lower BB, 2. Close inside the lower BB, 3. Close further inside the lower BB, i.e. VIX has to go up in both step 2 and 3, relative to step 1.

    We barely closed inside the BB today, and barely outside yesterday. I’m going to guess that IF we get the signal tomorrow, it’s not a strong one. Someone with more experience may have more to say on it.

  • Anonymous

    Mole, if you get a chance, can we get a Daily Zero update?

  • Joe_Jones

    http://evilspeculator.com/?p=22800 
    So for the nth time – here we go once more:
    For a $VIX confirmed signal you need 3 events:
    A close outside of the 2.0 Bollinger Band (20-day SMA)A close back inside the 2.0 BB – this issues the signalA higher close (sell) or lower close (buy) than the close of the day back inside the 2.0 BB – this confirms the signal.
    Once you get those three events a major reversal usually occurs within the next week.

  • Anonymous

    Russell 2000 Futures /TF drifting towards the day’s Lows

    Ditto the /ES

  • Anonymous

    I mentioned Ng on Friday, bollinger band pierce is what made me buy it and sentiment was ugly with capitulation and double bottom thurs. – Fri…of course I was roasted on it as i’m a simi evil speculator…but it was there for the taking…20$ gain on second lot..
     on Vegas Baby Vegas! 3 days agoyou folks are going to laugh but I bought into BOIL this morning, some TZA based off Rut divergence..why not bring the market down before fed day to squeeze them into QE thoughts…

  • http://evilspeculator.com molecool

    Fascinating – I will devour this! 10+

  • http://evilspeculator.com molecool

    Done.

  • Anonymous

    iH&S on EUR USD on 5min, necline 1.3037 target 1.308 ish.

  • Anonymous

    Greetings all and a (belated) happy new year.  I’ve been quiet the last couple months, and basically since I returned from my portuguese vacation, never really felt comfortable with many entries.  I closed my final gold short over the holidays and that has been it……..until now.

    Yesterday, I started building a short position in Dow & S&P at a variety of levels between 12,720-12,750 and 1,310-1,315.   Its the first time in ages I’ve felt comfortable with taking a decent position.

    I’m not for a second suggesting P3 or anything like that, in fact, possibly the odds favour continuation of this rally.  I’m just of the opinion the risk/reward here is much better on the short side as we are close to the all time highs in the bull market off the 2009 lows, so can set stops fairly close just above those levels.  Much higher than here and all bets are off and I suspect a lot of people will be having to revise their entire opinions about where we are in the cycle.

    We have also had a fairly easy, low volume melt up thats lasted for a fairly uninterrupted 1000 Dow points, and the European situation is starting to rear its ugly head again. 

    I may be early here, but I’m liking the risk/reward for shorts at this point.

  • Anonymous

    So far looking like more of the same sell off overnite then ramp up in AM before US open. 

  • Anonymous

    What was that? USD/JPY and other yen crosses just popped higher?

  • Anonymous

    Here is what I have seen developing past two weeks. IMO the fair value of the Euro was about 1.30. Now we have Eur and SPX about squared.

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

    how about a square-T?
    😉
    http://i43.tinypic.com/15ehhqx.png

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

    it’s a sickness really.
    DUCK DUCK GOOSE.

    http://i44.tinypic.com/23sewcx.png

    “Honey, pick me up some shorts at the grocery store.”

  • Fibz

    Sounds dollar negative to me…

  • Anonymous

    Are the Japanese in the market? all crosses seem really supported.

  • Anonymous

    It’s either quiet in here or Disqus is broke. Testing…

  • Anonymous

    Decent retrace, added shorts

  • Anonymous

    Hourly fireworks

  • Kudos

    I want to short SHLD, not available to short. Puts are lopsided in premium compared to calls. Only trading options for about a year now, is a debit put spread vertical my best bet to short since put premiums are ridiculous? Thinking about the 47.50/45 debit put spread

  • TwinTurboRX7

    Looks like a mini H&S on the hourly spx. Retesting the neckline?

  • nyse

    There he is! Welcome back, Corporal.

  • Anonymous

    I got stopped out of long bonds yesterday.  Stop too tight?  Have not gone short yet.  Looks like they are setting up for an inside day.

  • Kudos

    Inside day so far, Its now under that 100 day MA that Mole was telling us to watch closely. If we complete an inside day today, I would use the 100day as a stop for getting short on a breach

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

    helluva whipsaw yesterday & this morn.
    just have a plan written down on paper beforehand 
    http://i42.tinypic.com/2djzyup.png 

  • Fibz

    obama speaks tonight.

  • Joe_Jones

    Kind of a descending channel on 60 min SPX

  • Joe_Jones

    AAPL earnings after the close

  • Anonymous

    nice GG,
    I follow it as it’s a part of risk on imo.
    more momo past 5 days,  yellow 5 

    http://screencast.com/t/Y9UxPkvQs

  • Anonymous

    Damn bears!

  • Joe_Jones

    What do you expect? It’s lunch time.
    One of the strength of the bear (or maybe stupidity?) is patience.

  • Kudos

    well, we are likely to confirm vix sell signal at the very least, barring some 15 point /ES EOD ramp. 

  • Anonymous

    Trend alert along with stick saving 1300 draws a little concern.

  • nyse

    Sorry, can you repeat that? 😉

  • Joe_Jones

    LMAO!

  • Joe_Jones

    Doesn’t worry me one bit. The only thing I am paying attention to right now is Messrs. VIX and Zero. There is plenty of “news” AH and tomorrow to create a  catalyst for a major move, if you ask me. 

  • Fibz

    I must say it will be fun to watch Lagarde squirm as the Euro crisis worsens.

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

    HA!

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

    big red candles = dumping
    with slow rises (bulls nibbling, bears taking small profits simultaneously)

  • http://evilspeculator.com molecool

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