Friday, November 11, 2011

Trade Idea: Cliffs Natural Resources ($CLF) - Bullish

  • FinViz Screen of stocks with Fundamental Value and good recent Quater/Quarter EPS
  • ThinkorSwim Spread Hacker of option spreads with high probability of profit
*Options Activity
  • None recently noted 
*Chart Analysis

  • Possible Inverse Head and Shoulder Pattern
  • Other notes on Chart
*Fundamental Analysis
  • Value traders can take note to the following and why this stock is cheap at these prices
    • Trailing/Forward P/E
    • PEG (Price to Earnings Growth)
    • Price to Sales
    • Price to Book
  • Also traders that emphasize on fundamentals take note to:
    • Qtr/Qtr Sales
    • Qtr/Qtr Earnings
    • Return on Equity
    • Profit Margin
*Contributing Factors
  • Correlation study in relation to Coal shown with the respective KOL etf, notes on chart
  • Good correlation so if the trader believes KOL can rally, good chances CLF will as well 

  • KOL is representing a possible Inverse Head and Shoulders much like CLF

* Summary
  • Although not much options analysis is provided or did I see any, the technicals and fundamentals line up with this stock for a bullish trade

*Option Strategies:
  • Sell the Dec 55-50 Put Spread for credit of 0.72, with buying power reduction of $430.00
    • trade has a 82.60% probability of profit
  • More aggressive trade would be to go one strike higher
    • Sell the Dec 60-55 Put Spread for credit of 1.14, with buying power reduction of $386.00
Further note on these trades:
  • A trader could also do the inverse of buying debit spreads with my preference of selling the 75 call or just buy outright calls because the volatility is respectively in the low range but for me right now I prefer credit spreads as I am not able to watch the market on a continuous basis and with the current pace, a trader definitely needs to be attentive

Monday, October 17, 2011

Railroads: Combining Some Factors for the Bulls

While I am not one to trade based on economic reports, one indicator that I do like to watch is rail traffic.  Below is a video with Warren Buffet being interviewed by Becky Quick of CNBC and in it he states that he considers freight car loadings as his favorite economic statistic. 

I am no expert in economics but I do consider Mr. Buffet an expert and his opinion does make sense to me. If rail traffic is up, then it seems logical that raw materials and supplies are being moved and more than likely consumed. A trader can find weekly reports of rail traffic from the Association of American Railroads. Sample below from the website:
In keeping track of the Weekly Rail Traffic Summary, I can see that the last 3 weeks are showing gains comparing to previous slight gains or mixed results. This gets me interested in railroads as it looks like they have the economic support to justify higher prices. Knowing this, I then turn to the charts to see if they have a decent structure.

*Sorted by 10 day Rate of Change

To the right and below are some charts of railroads.  Looking through the industry, a majority of the charts look bullish.  

These are just some charts.  I would also favor looking at the railroads with larger market capitalization (KSU, NSC, UNP, CSX) and looking at their current valuation.  

Another tool a trader could use is options activity.  Look at where there is large open interest and see if it changed (were institutions closing bullish trades) during the recent sell off or did those traders have the confidence to keep in the trade.  

There is never a guaranteed trade and you can never be an expert in all fields.  What you can do is collect the data or opinions of experts in those fields and try to stack your deck with as many cards as you can.  Who knows further data from the Association of American Railroads may come out showing a decline and the charts may also deteriorate as well but I wanted to show how a trader can take as many factors as possible (expert opinion combined w/economic reports, technical & fundamental analysis, leveraged bets by institutions) and try to put the odds on your side. 

Tuesday, October 11, 2011

Trade Idea: Petroleo Brasileiro ($PBR) - Bullish

*Options Activity

    • Chart at right shows last 10 days and the large call:put volume starting on 10/3 aligns with the chart and a bottom being put in
    • 10/10 - 41% of the options volume was seen as Bullish

*Chart Analysis

  • Currently trading at the top trend line of a falling wedge. A break above would put us out of this pattern. Notes are on chart detailing the volume & potential break of a double bottom. Investors Business Daily method wants a break 0.10 cents above the peak of the double bottom with volume 40% greater than average (50 sma).

*Fundamental Analysis
*courtesy of FINVIZ

  • Value traders can see why this stock has put in a potential bottom as the valuation is cheap & attractive, taking note to
    • Trailing/Forward P/E
    • PEG (Price to Earnings Growth)
    • Price to Sales
    • Price to Book

*Contributing Factors - why I chose $PBR over others

  • As mentioned above I collaborated the blog posts from @chessNwine & @ZorTrades.  The post from @chessNwine alerted me to the stock so I looked at others in the industry and related industry.  
  • I then went to and searched the industry to see what stocks were showing large options volume being bought on the Ask.
    • Filtered these down to see what had a large bias towards Bullish sentiment vs Neutral or Bearish
  • I then remembered the article from @ZorTrades.  While the time frames or exact criteria may not line up I wanted to look for a stock that has not participated in this rally as much as the others.  Going back to the 9/19 close I was looking for one that needed to "catch up".
* Summary

  • PBR fit my criteria as it was beaten down, lagging the industry.  Fundamentally was a value and technically was due for some basing followed by breakout or breakout in itself.  Also the options activity showed that big buyers were interested.  While there were others that look appealing and would watch as they displayed some of the same criteria ($COP, $APA, $PXP), I chose to go with $PBR.

*Option Strategies

  • Long November 22-26-27 Call Butterfly @ 1.80 (requires $286.00)
    • Like this for max gain around 26, which is a resistance level
      • This is where the January calls were sold
    • Small exposure to Theta & Vega 
    • Above 27 resistance point returns +40%

  • Long November/October 23-25 Call Diagonal @ 1.60
    • More of a short-term play concentrating on a pin to 25 resistance at October expiration for a +55% return
    • Could roll this one if still bullish after October Expiration

  • Long January 2012 25 Call @1.50
    • More of a long term outlook as this is the same expiration month that the trader sold 7000 26 calls
    • Greatest delta exposure with the less max loss

Sunday, October 2, 2011

Mosaic (MOS) Straddle: Good Trade & Why I'm Banging My Head On the Desk

A stock that's been in the news lately has been Mosaic, Co. (MOS).  Every time I hear how hard it is falling I want to keep bouncing my head off of the desk.  The following is a review of a trade that could have turned out to be one my best of the year when factoring the analysis & trade...but not the exit.

9/21 - Looking for an options play on a stock with earnings coming up I noticed $MOS, a rather volatile stock had earnings on 9/28.  Looking at my volatility chart I saw an opportunity right away.

Key Points:
1) See notes on the chart as this is what I noticed.  A stock that could move big was consolidating, coupled with low volatility relative to the past.

The Trade and Reason:
  • Buy the October 70 Straddle priced at 6.90 or better
    • Chart could break either way & notes on chart all factor in
    • News & Factors in near future 
      • 9/28 - Earnings release
      • 9/29 - Economic Report of Farm Prices
      • Rising Dollar causing pressure on commodities, ie. Corn 
  • These factors made me choose the Straddle for the fact that the chart said it could go either way,  Implied Volatility was relatively low to recent moves, and the impending news events would keep Implied Volatility at bay and keep Theta decay at minimum.

Trade Fill
At left is the Risk Graph of the trade that was filled at 6.87 (just below my max allocation).

The Exit 
  • My goal going into this trade and with most Staddles/Strangles I play, was around 20-30%.  Current market conditions were volatile and quick & big gains could turn into breakevens or losses quickly.  So in setting my technical targets, this put the trade hitting my percentage return goal.
  • In 2 days my targets were approaching, this happened quicker than thought & thinking it could see a quick reversal I was looking to exit as I was at the lower end of my goal.  You can see the notes in where legged out of this.
  • From my exit forward, I got out at the worst time as this was in for a wild ride.

Action After Exit

  • Disappointing earnings miss coupled with poor economic report related to corn  caused a swift drop.
  • The subsequent drop I missed making the Oct 70 Straddle very profitable & great strategy.

  • Risk Graph showing the date 10/01.  While I cashed out at +$129 on $687 risk, the trade is currently priced at 21.10 (+$1423 / +207%).

Some Thoughts:
  • Hard to get mad as I exited at points where I determined I should exit.
  • At the same time, I shouldn't be so quick at scaling down to a lower timeframe but should have let this play out some more, accepting a breakeven if reached as I got out at the highest retracement.  
  • I only traded one contract due to current risk allocation but this is where multiple contracts comes as an advantage as a trader could have scaled out one contract leaving one on still.

Current Adjustment Considerations:
Below are two adjustment I would consider if still in this trade.  Basically I want to reduce my short deltas.

**Simple Strategy: Sell an ITM Put creating the risk graph at left.  Set a point above current price on the chart and exit if that point is hit.

Here I am selling the Oct 52.5 Put (ability to achieve around another $150 in profit)and would look to exit if 52.50 was hit on the chart.  The more aggressive you wanted to get to the short side, the lower the Put you would sell.

**My Favored Strategy: 
Create a 15pt wide Butterfly.  Sell 2 Oct 55 Puts and Buy 1 Oct 40 Put for a credit of 13.83.  This is my favored trade as it corners a profit.  At expiration the following happens:

  • Lowest gain is around $695-700 (price below 40 or pinned at 70.  
  • Max gain at peak of morphed Butterfly is $2195. (And beyond 85, unlikely)
  • Between 45 and 65 (my technical bail points) is $1200 at 45 and $1700 at 60.

The factors and research leading to this trading created a favored trade in my opinion.  This trade did move beyond my expectations and looking at it now its hard to see the profits left on the table.  At the same time a trader has to be satisfied that they took the collaborated factors and created a successful setup and executed it.  Now the exit strategy just needs to be modified.

Wednesday, September 28, 2011

I Hate English, Failed in Grammar, & Why I Started a Blog

First I must say that I am no pro-writer, I hate English, failed in Grammar and still have to Google what an adjective is.  But all that aside, I love trading and talking about trading.  While I don’t consider myself an expert in any one area there are some ideas I have or in general I just like to share information.   Trading is something I love and take seriously and becoming a full time trader is my long time goal…not to get rich or because I hate my job, but because this is something I love and want to do.

I primarily love to trade options because there is a great deal of strategy that can be involved and the managed leveraged is appealing.  I loved math in school, liked the game Risk and Monopoly, and like to play chess so the enhanced strategy aspect and diversity of options interested me. 

I also started this blog for an organizational and responsibility aspect.  When trading in my home by myself, I felt myself starting to get reckless.  With time I found myself not keeping track of things like I did before. With my full time job I found that when I did have time to fully concentrate on trading I found myself placing trades I normally wouldn't have thinking I had to make up for lost desk time or had to speed up my performance.  Well as any trader probably knows when you start slipping in your journaling, organizing, and are trading just to trade; performance reflects.  This blog for me is perfect as it reminds me to slow down and remember to collect your thoughts and stay organized. 

Another side project that I decided to do was set aside money for a blog account.  The money set aside will be for live trades which will be shared and shown on Twitter and Stocktwits from entry, to management, to exit (make sure to read Disclaimer), and email confirmations will be shown.  It won't be a huge account but I want to use it as a tool to analyze trades and also receive comments from readers if I could have done something different from analysis to trade management.  So really it will be a learning tool for me or any readers that will be publicly shared as I am no expert and always open to constructive criticism to improve on my trading and again hopefully it can be an all around learning tool.  I will type up a better description about this account within the Performance link. 

So these are some reasons on why I started a blog.  I love trading and talking about it, keeps me in check as I have more of feeling of responsibility, and wanted to start an account as a open-ended learning tool for myself or any readers.  It's an overall journey I look forward to and hope to walk a successful path.

Monday, September 26, 2011

When Bears Attack, Is It Coming? A Risk Grid I Watch

While today was a good day for the bulls there are several charts I keep on a Trade Grid that I use to help determine how I want to adjust my holdings.  I see this as my "Risk Grid".  When a majority of these charts are showing bearish I start to reduce my exposure through my trading account and my retirement account.  Below are the charts with a brief description along each explaining what it is showing me.  You will also see links with the referenced author to where I got these collaborated ideas from and encourage the reader to visit them for further in depth information.

Appetite for Growth
Nasdaq - SPX Ratio(screen capture around 2:45 EST)
I first learned about this ratio chart through @BigTrend.  This chart compares the Nasdaq Composite to the S&P 500.  I like like this chart as it shows if there is an appetite for growth among investors.  When looking at this from a long-term perspective you can see a lower high and lower low indicating a downtrend.  Also in recent days you can see the relative weakness of the Nasdaq vs. the S&P 500.

Consecutive Quarters Lower Study
SPX Quarterly Chart
(shows notes from chart I posted in Aug to, still represents 3rd Quarter)
This chart a study that was first brought to my attention by @SPYder_Crusher.  It shows that in a bull market there have never been 2 consecutive closes lower.  This is a current driver for me for reducing risk in that the end of September represents the end of the 3rd quarter and if we close lower than 1320.64, then this study shows that the bull market is over.

Going For the Safe-Haven
US Bonds - SPX Ratio

This is a chart and study read about that was explained by @gtotoy.  It compares the US Bonds to the S&P 500.  Bonds are considered the safe-haven so in times of uncertainty investors rush to bonds for the safety aspect and reduce their risk to the market.  This chart & study plots a Weekly ratio with a 65 period moving average.  Simply states if we're above the moving average bonds are favored and below stocks are favored.

Currencies & the Carry Trade
Weekly DBV chart w/highlighted Key Levels
Now I will be the first to admit that I have not studied the carry trade in depth and would advise traders to seek further advice to fully understand it.  Also this is a subject that could alone be an entire post.  But in a nutshell a trader would do a pairs trade selling the lower yielding currency and buying the higher yielding currency.

The first chart shows PowerShares DB G10 Currency Harvest Fund.  In watching @Stocktwits Brunch hosted by @stevenplace, he talks about this as being a risk on - risk off trade or a proxy for the carry trade.  In a previous edition he emphasized the key levels of 21.50-22.00 and 24.00-24.50.  Right now I use the levels as a reference to where traders are willing to allocate to risk assets (lower highlighted level) and where they become more risk adverse (upper highlighted level).  Also a drop below the lower highlighted level would be an unwinding of the carry trade and a flight to safety would ensue.

Daily chart of Australian Dollar to Japanese Yen
The next two charts show common examples of the carry trade to include the AUD/JPY and the NZD/USD.  Since the carry trade tends to trend I show the prices with the Heiken-Ashi Candlestick (a trend following candlestick).  In these charts I also plot a 42 period moving average.  Simple rules:

1. Bullish - Price > SMA, SMA moving up

Daily chart of New Zealand Dollar to United States Dollar
2. Bull-Neural - Price < SMA, SMA moving up

3. Bear-Neutral - Price > SMA, SMA moving down

4. Bearish - Price < SMA, SMA moving down

These are just some simple indicators that I follow that shows me when to reduce my risk.  I like the diversity here as it shows: appetite for growth, movement to safety, and world currencies and their appetite for risk.  I encourage readers to go to the references below for more information on these indicators that I use.

1.  @stevenplace ; ; explanation of DBV 13:10 min/sec into video 

*Disclaimer: While I provide links with some to services, they are for reference only and in no way are these intended to be advertising as I receive no compensation, discounts, or gratuities for listing them.

Sunday, September 25, 2011

$GLD Idea: Bull Put Spread

$GLD October 154/149 Bull Put Spread @1.47 with 26 days to Expiration

This is a $GLD chart that mainly analyzes the volatility of the underlying asset.

In looking at this chart and an options strategy that puts the probabilities in my favor, a trade that jumps out to me is a Bull Put Spread.

Chart Analysis: 
With the sell off, volume was high comparing to previous sell offs.  Current Implied Volatility is at the high of its previous 90-day range.   Augens Standard Deviation Spike hit an extreme of -3.39.

Trade Analysis:
While I hate to call bottoms with any sell off, the Oct 154/149 Bull Put Spread for a 1.47 Credit is an options strategy that I favor.  This trade gets you positive Delta and Theta while getting you negative Vega.  Below I have emphasized a trade that I like that expires at October expiration.

Above is an options strategy that I favor after analyzing the chart structure, implied volatility, and options trade. Currently this trades for a 1.47 credit (or required $353.00 in margin).  If this were to expire at October expiration above 154.10 the trader would receive the 147.00 in full credit (or 41.6% return on margin).  The breakeven on this trade would be around 152.50.  When aligning the strategy with the technicals, this is a trade that I believe the odds are on your side with buyers stepping in around the highlighted level on the first picture.

**As always, I am no expert and any further comments are considered an appreciated.**