On the Way?

Are the markets headed south again? And if so I am ok down to 3300 on the F, as I sold some 3550 puts against a long 3700/3650 put spread. I may be on the way to completing my first ever 'Box' trade- owning both the put and call spreads at 3700/3650, so locking in at expiry a guaranteed 50. I aim to pay as little as possible for this but so far only paid 12 for the puts so anything below 30 for the calls would be perfect. Assuming I pay 30 for the call spread, my buy price is now 42, to get 50, BUT I also sell other premium to finance the trade, which may mean it costs as little as 20 or so.
It would have been much better had I got out of last month's horrible trade, but I am still stuck with short 4000 calls, which are decaying and despite a jump in volatility were trading at 38 or so.
Can't win 'em all but I aim for zero losses. Protection of capital and monthly profits are the fundamentals of my trading.
Meanwhile our politicians continue to shoot themselves in the foot, showing how rotten our society has become.
As I'm in the city tomorrow I wonder if I'll be considered a capitalist or anarchist- my loyalties are divided!
PS. Anarchy does NOT mean chaos- it means leaderless- as in, we do not need to be led, especially by moral bankrupts and inept faux economists.

Trillions

Well despite the trillions thrown into the pot by Obama and pals, FTSE resolutely refused to hit 4000. Dow transports were up 34%-including an 8% rise yesterday- quite why is a mystery in an economy that is contracting, sales of goods are down so who is buying the index? Personally I need this to be froth and a bear market rally that is turning. March has so far managed to kick me in the privates more than I feel I deserve. Usually repeated failure at a level means a drop- triple and double tops are quite reliable. G20 next week and who knows what that will produce.

Confused of Surrey

Well somebody has got a serious case of the hots for the market- the US seems unstoppable, quite why and on what basis is another thing entirely. The economy and employment are contracting ferociously. We, however, have to trade what the market gives us, good bad or downright silly.
Caveat- California has a tent city in Sacremento, just like the first great depression. Arnie the guv'nor has arranged for them to pitch in a fairground.

I am impelled to disclose

http://www.thedailymash.co.uk/
I was directed to the above piece of daily frippery and belly laughs by someone on Motley Fool Joker's Corner.
When all is darkest I turn to my depression busting soaraway Daily Mash- great stuff though rude at times.
I noted the DOW started the day foaming at the mouth, and has since started(hopefully for me) its correct path towards 6000.
Only when all the indicators are on the floor will people force the powers that be to grow up and get serious about our dilemma.
The bailouts have created a massive divide between haves and have nots, and there are many rumblings from anarchist groups.
I was not in the UK for the poll tax riots but that was a very big wake up for Mrs.T.
Broon and his hideous stormtroopers will no doubt be arresting vicars and senior citizens at the slightest sign of protest, which will notch things up I fear.
The answer? take the hit now- lose the rotten banks, start again with a humbler nation of caring citizens. Broon is only sucking up to them because he owes them big for his largesse over the 12 years of phoneyism.

Twitter

Well apparently Barack Hussein Obama ( you couldn't invent a better name for public enemy number one could you?) seems to think that he sees signs of a recovery. It brings to mind Monty Python and the dead parrot sketch.
It's easy to gloss over the detail for politicians, and our own Gordon Brown is on a world tour to 'save the world' in some bizarre pantomime. They just don't get it-but they will when it's too late and they will use their political skills to explain that they did what they could yadda yadda. Meanwhile the banks must be laughing their socks off at the crass stupidity, and overwhelming joy that they get a free ride. Who they going to lend to this time though? The small business whose prospects are dwindling daily?
the homeless? The unemployed?
I know -Zimbabwe-the only country with real growth prospects once Ebagum and his thugs have been rounded up.

the end of the beginning?

Is this just a fat bear market rally based simply on printed ponzi dollars pumping up moribund stocks? I think it will take a while longer but even McDonalds has to take a hit soon-either that or the taxpayer stops subsidising them by paying off the credit of the incompetents. Help people when they are down, but not when they are reckless- like millions here and in the US who will never pay off their easy credit, but still enjoy the mobile phone/junk food/ sky tv lifestyle. The welfare state cannot support the ongoing massed unemployment, something has to give, so credit card companies must soon take the biggest hit of all.
So when the bottom line of credit falls away there will be too much money chasing too few people yet again, so where that leads I'm not sure- 50% inflation probably. I think governments have overreacted to such an extent because they know how dire finances really are. I doubt as a non-economist that throwing trillions into the economy will do anything helpful.
I recall once, long ago whilst working a temp job in a chocolate factory, I suggested instead of working, the government just printed more money- so a whole generation could sit back and do nothing! Seems someone was listening.

Convinced!

I'm not sure if this is just a bear market rally and soon enough reality will kick in and we'll see the F back down at the low 3000s, but I bought a put spread-3700/3650 for 12 today. That makes me massively delta negative, so I need a few hundred points south now. What does the chart say? Massive overhead resistance and just because 4000 is the obvious big hurdle doesn't mean it'll be an exact trigger for a decline, but decline I reason there will be- stochastic and William%R overbought, and the trusty 62 Ema is about where we are now-3950 0dd.
Expect some shocking news soon, and I do hope it is only of a financial nature as the terrorists seem to be rampant in Pakistan Afghanistan and Iraq.

Oops!

Carpetright is not optionable- I was thinking of Homeretail -which was displaying signs of cracking. There are spreadbets and single stock futures. I am watching IG's Sept SSF.

Option Trader survey

One of the newsletters I get from options people had a survey -so I thought it'd be fun to do. I was shocked when they said that 73% of their traders had lost money -some big, in the last year. I was also at variance with them about picking the underlying-seeing as I mostly trade the index that is not surprising. I spotted Yell as a massive short about a year ago- it went from 200 to about 17. Now a far dated put or even put spread would have been a monster trade-at least 10 to 1.
I forgot to do the trade!
One I have seen currently is Carpetright- which appears to be optionable. It kept going up recently, hitting a fiver-totally against all logic. No-one is buying carpet, let's be serious for a second. Houses are not selling, money is tight, so only the uncreditworthy would be suckered into some suspect 'buy now pay in 2 years' deal. I would expect to see CPR. on the floor in the next 6 months, but don't like option prices -any input gratefully rec'd. I will review this-but do not like to have short options on mad things like equities that defy the rules of the universe.
Link: http://uk.finance.yahoo.com/q/ta?s=CPR.L&t=6m&l=on&z=l&q=c&p=e20&a=w14,m26-12-9&c=
I'd like to see it back up at the 20 before going short via a put position. Happy trading.

Idiot!

Had I not messed with any of my positions I would have been fine-short at 3700 and 3800-perhaps ignorance is bliss-but I knew it was quad witching and expected the market to smash up again today-looks like thursday was action day.
Back to the drawing board and no 'investing in myself' for a while!
Actually PIN risk is unknowable, and in the past I have avoided it- closing out for a few pennies the short options that stood the remotest chance of being hit. I do however have a specific strategy for expiry week-and on that basis had sold the 3700 puts- the 3800 calls were just outside the comfort zone.
We live to fight another day.

Grrrrrr

Well I had a bad feeling about the market today and when you think it's out to get you it probably is. The F breached 3900 comfortably and then took out the pivot R1- the US meanwhile was up and the trin ( will explain another time) was at 0.43 which is monster bullish. So, I am thinking:
1. Another trillion dumped into the market 2. Bad news has been shrugged off 3. A key level has been breached and 4. the obvious target is 4000.
So- I rolled my short 3800 calls one for one into April 4000 calls. I was able to set a limit of zero as the trade is recognized as a diagonal calendar. So I bought at 105.5 and sold at 105.5, giving up a month's time premium and hoping we have seen off the highs for now. I can have an expensive lie in for tomorrow's expiry, so it's not all doom and gloom. Trouble is I have been here before- chasing the flippin market as it goes to the moon and each month you think it's still too high to take any downside risk, so you make little profit.
On a sidenote- I was very risk averse this morning and closed out short puts -paying 9.5, but I had sold them 2 days ago for 20.5.
I figured I could dip in again if the market tanked, as it usually rises for the expiry.
Anyway I was played for a fool today, and put myself in the position of being a forced seller and forced buyer.
That is not what a good terrapin does.

Eeek! They are trying to kill me

Yes, the market knows my positions at all times and tries to get me whenever possible. Currently the stupid F is up 80, as the US and UK governments give away the next 40 years earnings, which is going straight into the stockmarket and avoiding the real economy like the plague.
Why do politicians always expect people to do the thing they want them to do? Banks will do what the hell they like with our money, and nothing will change that unless we pull the rug out. I say let the banks go and start afresh with a new system of clearing banks that operate like a mutual and can only lend the cash on its books, and with straightforward criteria-it's not hard to make monster profits when you borrow money for 0% and lend it at 6%.
Many of the doom mongers predict the doubling of unemployment, based on simple facts-when 2 million are out of work they are not spending and cannot borrow, which leads to more job losses of course. The government ignores the fact that the many who still have a job are under water with credit card and mortgage debt and rent and council tax arrears- if banks had lowered rates this would have been a big help but they have simply avoided giving away anything more than absolutely neccessary.
So banks still make profits at the expense of the rest of us.
I'm not saying anything new and I guess not many would disagree with my angry sentiments, but we are being royally sh*fted and we may not recover for many years.

When things go wrong

Well evidently someone is pumping trillions into the stockmarket at taxpayer's expense. Excuse my cynicism.
I am short 3800 calls which expire on Friday. I could have bought them back to close at best today at 65, and frankly have no idea where this rally is going, but rolling these into April now looks the best plan, but I have no desire to pay any time value to add to my misery. I hope that common sense rears its head and brings the markets back down to reality- nothing has changed. The army of unemployed grows daily, repossessions and bankruptcies are running at all time highs, so should I be long? Quite probably yes-while US snake oil salesmen are doing their bit to tell people the recession is over.

Ugly, but it's expiry week

Well the curse of Friday 13th didn't materialise, even though this was the second one this year.
My trade means that I am short 3800 calls and may well have to adjust. The one outstanding feature of the charts, is that the VIX has come down to the rising 200 Ma, and lower Bollinger band. One would expect a bounce here, but if not, this rally may have a lot more legs yet.
I am exposed to the real economy perhaps a bit too much and the debt stats are alarming for ordinary folk, who seemed to think that credit cards were easy sources of cash. I know that efforts to rein in the debts are proceeding way beyond legal acceptability and harassment is rife with collection agencies. The real toxic end of the market (what's in yer wallet type of thing) and others with names with a G in them have always misbehaved and used threats-but it serves no purpose if there is no money to be had.
Thus any rally should fizzle out based on the real world but we are talking about the stockmarket-and other people's money.
To quote P.J. O'Rourke:
You buy something for yourself with your money you are not too concerned about the cost. You buy something for someone else with your money you are cautious. You buy something for someone else with other people's money -you don't give a sh*t. thus go government and fund managers.
There will be reckless buyers at the top and desperate sellers at the bottom- they are called financial professionals. Us lowly retail players have to be a tad more cautious- I can't afford to be Warren Buffett and lose over 50% of my pot.
Meanwhile our one-eyed rabbit Barney had to have his one remaining eye removed surgically. The eye didn't work, and he was in pain-he is recovering well, and his blindness notwithstanding, his quality of life will be much improved.
We made a pledge that where costs were reasonable, we would do all we could to preserve life and eliminate suffering, and Barney and his lady Summer were our first rabbits.

Calls

I have been having sporadic comms with a fellow trader who has had some success with plain calls. I am always open to debate, and my views on the subject are quite well known and I believe widely held. I don't like buying calls because as markets rise volatility drops and hence the value of the call drops. I like covered calls even less, as it is always the underlying that is a problem -you cap your profits and then let the underlying go to hell. I prefer to trade index options as you have the least headwinds.
Having said that, my current trade is a bit underwater, having sold the 3800 calls to buy 3300 puts. So the other side of this trade would have been a good winner with a market move of 200 points in its favour. My preferred strategy if selling puts, however is to buy a call spread, to negate time decay and have some trade off with volatility.
I'm also reminded that I had forgotten the difference between a simple put or call ratio spread and a backspread. Having had a problem with the former a while ago I had dismissed these as too horrible for my tastes.
A ratio spread would mean buying 1x 100 strike call and selling 2x 120 strike calls, with the expectation that the underlying won't go above 120. Of course if it goes to the moon you are in trouble as you are effectively naked 1 call, with a spread that can only ever be worth 20.
The backspread would be the reverse of this- sell 1x100 call and buy 2x120call- the most you can LOSE is 20 in this case.
You want a credit in both cases and vol skews can make this happen- and that is for another time.

Frozen

My current position means I am reluctant to take any more trades until I can get out for zero or a profit. Ill timed but I doubt too many other than US government insiders could have seen the monster rise on Tuesday.
I am loathe to take on any downside risk as the news can move the market down 5% in a flash.
The weather is tolerable so after a strenuous bike ride this morning, I'm feeling like I could take a long walk later with a Cuban- one of my Jose Piedra Cazadores (cigars). I have maybe one a week, and am prohibited from igniting these babies indoors!
There is nothing wrong with 'investing in yourself'* and the occasional reward is every trader's right. We do something extraordinary, and could not function if we wore a hair shirt constantly.
* I count exercise and the odd indulgence as an investment.

Market Action

Having been out on civic duties I was shocked to see the F had smashed up 100 points in a few minutes in morning trade, but closed below 3700. The language of the sales people (financial pundits) sickens me when they talk about the 'banking sector fighting back' and trotting out other belicose headlines. It's a market full of scam merchants, nothing more. Some claim to have a proven track record or clever way of predicting the market, but if they are so clever how come they have lost trillions?
Wealth has been destroyed on an epic scale and the idiots responsible are getting more of other people's money- it isn't going well and I really don't think we have seen the worst. With the Torygraph telling us that of the working age population 24% are economically inactive and 20% in government it doesn't bode well.
Yes my trade is underwater! Grrrrrrrrrrrrrrrrrrrrrrrrrr

Coincidence?

A cynic might say that mention of returning to the' up tic rule' coincided with a rather silly announcement from Citi (yes the banks are making fat profits) to inflict maximum damage to anyone short the market and with Citi under $1 it was not really a huge punt for anyone. It's one thing to trade markets but when governments stick their oar in, it's like your team playing against not only the opposing team, but also a crooked referee.
Aside from my trading I am involved with helping people with debt problems, and I can only foresee an avalanche of these-and not just the typical £16k on the plastic- fuel bills,food bills and rents have increased, and we do not have deflation, so poorer people are squeezed. My council tax is over £1800 or £34.60 in old money-that is a lot to get the bin emptied!
The banks mailshot me with offers of loans and credit cards all over 20% interest. As Warren Buffett said -I can't get rich borrowing money at 20%- for once I agree with him.

Imprudence

Decided to place a risk reversal today- sold 3800calls and bought 3300 puts for a credit of 4.
This was prior to the US open which is always hard to guage, but the Ftse looked like it was struggling to hold 3600.
Bang! As the advert says, and the indexes smash up to the moon. These things happen and I am now at the mercy of the markets.(which I would be even if I was currently winning).
What if it all goes wrong? Well if FTSE starts to hit the 3800 level, and with expiry just over a week away, I will look at various ways of not losing money.
Call premium was overpriced,time decay is my friend,so let's hope for a plummet- we know it's waiting to happen even though the US again is as exuberant as a 6 week old puppy.
I am today however imprudent, and should have waited 10 minutes for a real juicy trade.

Today's Action

Aside from tinkering with binary bets- which would have given me the princely profit of £9, at £1 per point based on 2 trades, one winner one loser, I have been watching a spread trade I want to try for real. It amounts to buying a 'Box' and for the 'F' the strikes would be 3550 and 3600. The aim is to buy both the put and calls spread so wherever the market is at expiry you have locked in the value of the spread which is 50. My aim is to buy one side for less than 20, wait for a market move and then buy the other for 20- 25. Thus you pay 40-45 for a trade guaranteed to be worth 50 in 2 weeks time. The trade is further financed by selling much further out puts and calls, and if the market does shoot dramatically one way or t'other you have the cushion of the spread's 50 point value.
Let's put this in real money terms- today in theory could have sold Mar3100 puts at 24 x 4= £960
Buy the 3550/3600 call spread for 17 x10 =£1700
Sell 3750 calls at 36x4= £1440
Buy the rest of the box- the put spread 3550/3600 puts at 26x 10= £2,600.
Cost = 2,600+1700= 4,300
minus 1440+ 960(proceeds of sold options)= 2,400
Thus a cost of £4,300 minus £2,400 = £,1900, to give you a locked in £5000.
All the above assumes your short naked options expire worthless, or you are able to sell more and move strikes out further.
Your risk comes if F exceeds 3850, or 3000. These are not precise numbers, but you get the picture I hope.
I'll explain why I love this strategy at some point and if I can get it to work with real money.
Meanwhile rabbits need some attention and our sick guinea pig needs something tempting.

Optimism

I get quite  a few trading emails and one British one has video clips from various pundits. I like David Linton's TA but most of the other stuff is worth a quick look.The latest was about the low oil price giving a shot in the arm to the world's economy and it would be the equivalent of  +2.7% of global gdp. This assumes a great many things- not least of which that demand will be as high as in the past. With plummeting orders, manufacturing is in the toilet retailers are struggling and just about everyone is scraping by, with little prospect of improvement. Most of these pundits are sales people and they don't have a well informed opinion, they just base it on a few favorable metrics.
However, if there are cheap opportunities to go long, with reward at least 5 x risk, then looking ahead to April I might even consider some call spreads. With that in mind- I'm watching 3850/3900 call spread and would consider a buy at 9-currently 7-12.

Very very long timeframe chart

Not sure how relevant any of these are but there's a fibonnaci level around 5500 on DOW

Old Dog New Tricks

Doh! Call me Homer. One thing I keep meaning to do is place a limit order with my broker to close out trades. I was out on thursday and my risk reversal- short 3850 calls long 3200 puts went into profit after looking ugly after wednesday's massive rise.
Anyway I closed out for a credit of 10 way below my target, but I could see the F scooting up, which it duly did.
Had I set a limit of 25 for thursday I might well have got it.
Lesson learned? I hope so, as it's getting expensive to be such a sloppy trader.

Some Basics

A few old chums have said that they didn't know what the hell I was on about- so a few pointers.
I trade FTSE index options. These are priced in pence but relate to FTSE at £10 per point- so a 3200 put trading at 20 is worth £200. A 3850 call trading at 43 is worth £430. Options do not move 1 for 1 with the index like a future does. for detailed explanations of the Greeks- the metrics of how options are priced, and how they move, there are many explanations on the 'net. For terrific free education there is 21stcenturyinvestor.com. Which has a 12 week course with Q&A.
FTSE index options are European style which means there is no early exercise-unlike share options which can bite yer bum in a moment.
I have a great many stats and charts so if anyone has a specific query I may be able to help with data. I'm always happy to talk about options trading however.

The Ugly

I felt a bit under pressure to trade and waited for what I thought was resistance at 3600 *on the F. On this basis my trade was a long combo or risk reversal- selling 3850 calls to buy 3200 puts. The market decided to smash upwards at the end of the day and closed 40 points above where I traded. I am looking at a cost of 23 to close having opened for a credit of 4. Annoying, and of course it is simplistic to expect these to work every time. Time decay and volatility work in one's favour when wrong. Having a plan is also key to exiting a losing trade.
Will the market describe a 'V' bottom or will we have a retest or is this just some silliness from 'quantative easing' where they subtley leak money into the market? I'm hoping for a drop, but need to be cautious if this gets out of hand.
* 3625 was the pivot level R1, and the F was wobbling around central pivot for a long time,

F in Hell

FTSE struggled to stay above 3500, and without the puppy like enthusiasm of the US market I think it'd be down around 3300 which would pique my interest for a long. Not happy to sell puts currently and annoyed that I missed the obvious trade- a long combo or risk reversal- sell calls to buy puts. The move on FTSE was massive- 150 points so the rewards for tiny risk were massive. Calls are overpriced still, so it was a gift of a trade just wasn't thinking.
On a sidenote- I get trades from John Piper who is a mentor and his binary suggestions are sometimes huge fun. Tonight's is for the DOW to be lower by more than 200 which IG index wrongly express as wall street cash low to be <200. Buy price of 4 recommended. (They have a terminal value of 0 or 100 hence binary)
John started a scheme to get traders to punt his own money, and the idea was to double your pot each month. Mine is up 40p and the scheme was about 18 months ago- I may be a slow learner. I like binaries and they are a great low risk trade. Would love to meet fellow binary 'traders'.

Caught out

Well I decided to stop looking at the market around 9 this morning, and get on my bike, as the scales are telling me that stomach bulge is not a trick of the light. I have been trying to evaluate a system from one of the minor trading Gods- John Carter. A friend actually copied out the system which is HOLP and LOHP- high of the low period and low of the high period. This morning on F there were about 5 examples of the HOLP as the market tried to rise(against the prevailing trend) and hit 3675 on cash- which is a bit above the central pivot, but may have some relevance somewhere! So a drop was on the cards- I just didn't see such weakness this morning I thought at least it would do us the courtesy of waiting for the US to open. The drop below the central pivot was a big clue. Hope no-one is suffering from wrong plays.

No Deal

Well I started to look at a combo with a twist- buying a call spread as I don't buy naked calls.

I was watching the 3300 Mar put to sell at 48, and 3850/3900 call spread to buy at 12- and only selling a tiny amount of puts, to make this a small debit trade of a few hundred Quid.

The risk is if the market goes off a cliff, and frankly I would not be surprised to see this-the F broke it's 12 month low and then dropped through the next possible support level at 3650.

3600 is next, but ...........

There will be a bounce, and short covering will make it a big one, but right now we have no buyers.

Oddly the Vix hit 50 and then dropped back a bit- fear is not at the kind of level that options traders like to see when the market is behaving so horribly.

Preservation of capital is paramount right now, and when in doubt do nothing -as Price Headley says " I've made more money sitting on my hands than from trading". Getting good at doing nothing is hard, but I am learning.

I don't make predicitions

And I never will! Thus goes the football managerspeak.

F has now penetrated the last low and I have no idea where support may be- possibly 3600, but with the US not showing signs of shrugging off the dire AIG news, I don't want to trade in size. Might have a small half trade or so.

Not blowing up is the order of the day. Hope no-one is suffering too much currently.

Back later if anything looks interesting.

VIX latest

Just thought I'd share this- hard to say which way it's going to go next week.