At TickerTank we believe in reacting to price action rather than predicting it. That said, every once in a while we like to go out on a limb and make a bold prediction.
We predict Natural Gas Futures will print 3.25 before the end of 2011. It seems extremely cheap here and pretty much everyone you talk to sees natty going higher from the current 3.75 price point. The bullish argument makes plenty of sense given the fact we’re in Hurricane Season and all it takes is one storm threat to push natty back to 4.00 and above.
That said, the head & shoulder pattern we pointed out in this article has confirmed and we see it completing the measured move to 3.40. A move to 3.40 will put in the October 27, 2010 gap which will result in a gap fill and a print of 3.25. Let’s face it, Natural Gas supply is massive and as of now there’s just not much demand for it. That will change with time, but in the near term we see it going lower.
In the event this prediction comes true, we have every intention of taking a very bullish stance on natural gas via futures, UNG options plays, or a mix of both.
About a month ago we mentioned the bearish Head & Shoulder pattern in Natural gas Futures. At the time, they were trading around 4.19. Now Natty is at 3.76.
Although the downside move to 3.76 is a good start, the measured move has yet to take place with regard to the H&S pattern. The move measures to 4.40 (yellow rectangle) which puts it in a gap from around this time last year (pink oval).
On the flip side, there is nice support here in Natty. The 3.75 level is an area where buyer tend to step in, which could prevent the full H&S measured move from taking place.
At the moment, we are not holding any positions in Natural Gas Futures or UNG. If this support level holds a little longer, we will put on a 9/10 Bull Call Spread. If support break, we may just short some Futures.
Get your mind out of the gutter…that’s not what we mean!! ;-)
This is in reference to Technical Analysis. You see, Technical Analysis can be extremely complicated or fairly simple. I choose to keep it simple.
What do you mean by “keep it simple”?
The more indicators you use to confirm a trade scenario the less trades you are likely to make. Reason being, the chances of a technical studies disagreeing with your stance increases as you invite more studies to the party.
Sure, it’s nice when the situation arises where a plethora of technical studies all point to the same conclusion, but that’s rare. The only way to become a great Trader is to trade, and if you’re spending all of your time analyzing a position with a variety of technial studies, you are taking away from your actual trade activity.
You still haven’t answered the question. How do you go about keeping things simple?
My method of keeping it simple is by slimming down the amount of items I look at when analyzing a trade. Price action is the primary component I look at when scanning for trade ideas. Volume and Implied Volatility play a huge roll as well.
Aside from price action, volume, & implied volatility, there is no single technical study we have to see a confirmation in. I may take a look at the 50 & 200 day Moving Averages, Fibonacci Retracements (if the price action permits), RSI, MACD, and the likes, but if I like the price action I place a trade regardless of what the studies are saying.
Does this result in a winning trade every time? No, but neither does spending hours mulling over technical studies. Trust me, there have been plenty of occasions where I’ve spent hours analyzing trades that looked like sure things only to see them fail miserably. That’s why these days I keep it simple and focus on being an Active Trader rather than an “Active Analyzer.” The end result has been a dramatic increase in not only my portfolio value, but my abilities, knowledge, and confidence as a Trader.
Keep it simple! It’s worth a try. Worst case, you lose some money and go back to your over analytical ways. Best case, you find a new beginning and totally change your game as a Trader. I’d say that’s a risk/reward worth pursuing, wouldn’t you?
The market is trading in a volatile range, and has been for nearly a month now. If you chart the VIX, you will note support at 30 and resistance at 44. I’ve been playing this range via bearish positions when the VIX pull back near 30 support and bullish positions when the VIX pops up near 44. Yesterday the VIX climbed near 44 once again, so I put on a bearish VXX spread (VXX is the ETN that represents the VIX).
I make it my business not to predict, but to react. I am reacting to the range, and will play it until the range breaks. That could happen this time around, and if the VIX does pop through 44 range resistance I’ll bail on my positions, take the losses, and switch to bearish positioning.
We are holding an absolutely awful position in NFLX. On September 8th, we sold (to open) the Oct 195/200 Bull Put Spread @ 1.78. We noted NFLX was reacting to the 200 psychological price level, and saw an opportunity. There had already been one upside move off the 200 level, and with NFLX sitting on the price level once again we decided it was a good time to pull the trigger on a conservative bullish Vertical Spread.
The spread we chose gave us a little breathing room below 200 before we started to lose money. Little did we know Reed Hastings was going to announce the negative adjustment in guidance a few days later.
We are at max loss (-$322 per spread) on this trade, and fully expect to exit the position at max loss. There’s no point in exiting here since there’s no more downside, but there’s pretty much no chance NFLX will bounce back to 200 before October expiration. This trade is a great example of just how crazy financial markets can be. Regardless of the strategy, it only takes one unexpected thing to completely throw your position off.
Be smart, be careful, define risk, live to fight another day!
We are noting Bear Flags all over the place. Some have broken down quite a bit, some are just breaking down, and others have yet to break down. Let’s take a look at a few examples…
FCX broke bear flag support at 42.50 and has since tanked. The measured move is 27.50, so there may be quite a bit more downside to come.
ACI just broke bear flag support at 18 and fell quite hard during today’s sell off in the Coal sector. This move measures all the way down to the 9-10 range, so ACI may have some scary downside ahead of it.
AA is starting to break down after today’s push below 11.25 bear flag support. The height of this flag pole is about 4, so AA may be headed to 7.25 (at which point we would start selling Naked Puts like crazy).
Last but not least is SPY. A bear flag is in tact, but has yet to break down. Bear flag support resides at around 111.50, and if it breaks down on strong volume the move measures to 89. That would translate to approximately 850 in the S&P 500, and 8,500 in the Dow 30. Scary thought, but anything is possible in this market.
This is by no means a scare tactic blog. We are simply pointing out a few bearish technical patterns, and sharing our thoughts as to what price levels we are watching in these stocks. If these bear flags do reach their measured moves, there will be some amazing buying opportunities in all of the names mentioned in this post.
First of all, we would like to thank everyone that participated in the TickerTank ‘Ultimate Trader’s iPad’ give away. We appreciate you helping us spread the word about the contest, and putting the words “TickerTank” in front of more and more eyeballs.
Good business is all about exposure, and we have seen a great deal of interest in TickerTank since the contest started. We owe that increase to all of the participants in the contest, thank you very much!
So now for the big news…
We cataloged all of the entry credits in excel at the end of each day.
For twitter entry credits, we noted the twitter handle (one entry credit per day).
For Newsletter entry credits, we noted the email address (three entry credits, one time only)
For Premier Membership subscribers we noted the email address (ten entry credits, one time only)
At 2:00 EST today, we went to random.org and plugged our numbers into the “True Random Number Generator”. There were 867 entry credits cataloged, nice!
The “True Random Number Generator” spit out # 787:
We went back to the excel spread sheet, and referenced 787. The winner of the TickerTank Ultimate Trader’s iPad is Michael C.! Congratulations Michael, we will be in touch by the end of the day.
We are going to ask Michael to provide us with a video of him opening the box when he receives the package ,or a picture of him holding the Ultimate Trader’s iPad. If he agrees, we will be sure to post it.
Thanks again to everyone involved. This will not be the last of our promotions, so stay tuned!
Today we are introducing another way to obtain entry credits before we draw the winner next week. Start a TickerTank Premier Membership and receive TEN entry credits immediately! This offer expires September 15th, so act now.
What do I get with a TickerTank Premier Membership?
As a TickerTank Premier Member you receive our detailed email trade alerts, private Q&A phone sessions with our expert Trader’s, and full access to our Technical Analysis video coaching series!
Trade Alerts, Private Q&A, and Coaching Series sounds nice. Will you go a little more in depth?
Trade Alerts: Members receive entry, modification, and exit alerts via email for every trade we place. We average 3-5 trades per week. Never less, sometimes more. The alerts consist of Swing, Basic Options, Advanced Options, and Weekly Options trades. Our Swing Alerts provide Members with a stop & target as well as probability of success and position sizing on every trade. Options Alerts break down every aspect of the trade from how to enter, max potential gain & loss, probability of success, and portfolio exposure! Detailed written analysis is coupled with video analysis on every alert.
Private Q&A: Send an email to our support staff and schedule your call, you will be gaining valuable knowledge with one of our expert Trader’s in no time! Members are granted two 30 minute phone sessions per month, an excellent benefit to being a TickerTank Premier Member.
Coaching Series: Existing Members love our Technical Analysis video series. Gain must-have knowledge if you are fairly new to trading. Brush up if you’ve been in the game for years. Fourteen videos covering everything from support & resistance to head & shoulders patterns will get you in the game in no time.
How much does a Premier Membership cost?
Our goal is to provide value at a price everyone can afford. Become a Premier Member today for only $29/month!
What is the cancellation policy?
We are confident you will love being a Premier Member. That’s why we have a no hassle cancellation policy. Call us at (502) 384-6554 or send a cancellation email to email@example.com to stop your monthly billing of $29. It’s that simple.
That sounds great! How do I sign up?
Click here and fill out the order form to become a TickerTank Premier Member and earn ten entry credits for the Ultimate Trader’s iPad right now!
$29/month max risk with unlimited potential gain and potential to win a free iPad 2 loaded with Trader goodies? That’s a trade we would make every time. Start trading smart with TickerTank!
Yesterday we talked about setups in CSCO & US Dollar Futures (/DX). The action we are seeing in these two names this morning is worthy of a follow up.
We mentioned the downtrend resistance breakout in CSCO yesterday, noting a pull back to 16.00 as a solid long entry potential. This morning, CSCO has pulled back to 16.05. To us this looks like a worthy reward to risk entry point. A 15/16 Oct Bull Spread @ 0.35, Naked Oct 15 Puts @ 0.41, or a Covered Call entry here all look like worthy candidates if you agree this is a decent long entry opportunity.
US Dollar Futures (/DX) are breaking strong to the upside today. That said, there have been short term breaks above the 200 day moving average (yellow oval) which resulted in a pull back. We are cautious here, but this momentum should not be ignored so we may nibble a little. UUP is a good way to play this without the leveraged exposure.
Once per day by sending another tweet. Don’t annoy people with the same tweet everyday. Just tweet when you see an interesting article (about the markets, or about the apps we add to the iPad!) on TickerTank that others might enjoy.
No. Anyone can win and every tweet will have an equal chance. You really should be a member though…it’s great.
What apps will be on it?
Patience. We will be highlighting every app we add to the Ultimate Trader’s iPad with a new blog post every trading day. (Great opportunity to tweet another entry, no?)
How will you pick a winner?
We will use a random number generator to choose the the winning tweet from all of those that contain “TickerTank” and a link to one of our URLs.
When will you pick a winner?
On Friday, September 16th, 2011 at noon ET. We may or may not also give out secondary prizes, depending on the number of entrants.
Do I really have a chance to win?
Yes. This isn’t etrade running a contest to millions of people. We’re small with a small and profitable client base. If you enter by tweeting every day, you’ll have a real shot at winning when we randomly select one tweet.
Why am I still asking questions?
I don’t know! Get your tweet out now and start planning to bank coin on the Ultimate Trader’s iPad!
Let’s face it, the market becomes more and more macro with every day that passes. As the impact of global macro news increases, so should your knowledge of global news.
Our favorite place to get news is Drudge Report. We clearly aren’t alone, here’s their traffic data…
031,021, 989 in past 24 hours
900,575,165 in past 31 days
9,880,330,009 in past year
Those are amazing numbers, and solidifies Drudge Report as the place to go for global news. This is precisely why we just downloaded the premium Drudge Report onto the “Ultimate Trader’s iPad”!
The beauty of this app is the simplicity. Drudge Report is a top notch news aggregator. Plain white background, brilliant headlines, link text to top global stories updated regularly throughout the day, relevent pictures to go along some of the headlines, and red font color on stories they deem as extremely important.
Here’s a look at a portion of the page:
Bottom line, global news is an important element of trading. TickerTank’s Ultimate Trader’s iPad 2 would not be complete without an app that provides relevant macro global news stories. There are plenty of options out there, but Drudge Report is the gold standard in our opinion (and millions of others).
The Ultimate Trader’s iPad 2 giveaway ends September 16th. Don’t miss out, enter to win today!
Strategy Alert!: Consider Legging Into an Iron Condor
Market environments change all the time. The key to being a good Trader is recognizing the changes and knowing which strategies fit best in any given environment.
The environment we are in right now is very volatile, which immediately makes most think the best strategy is to stick & move with direction based plays. That’s not a bad idea, but the wrong trade can get ugly fast.
Rather than stick & move swing trades, we have been primarily focusing on conservative vertical spreads. They have been working well, but today we see opportunity for a new type of strategy that builds off the spreads we have been trading…legging into Iron Condor’s.
Iron Condors are simply a combination of a Put Credit Spread and a Call Credit Spread. An Iron Condor leg in simply means you enter one of the credit spreads initially, then enter the other credit spread at a later date to complete the Iron Condor.
Let’s look at SPY as an example. As you can see in the one year chart below, SPY has been trading in a very wide range between approximately 112.50 and 122.50 (red lines).
That’s a significant range, and with inflated volatility premiums you can get a reasonable price entering the Iron Condor all at once. That said, you can get a better price if you leg in.
Yesterday morning we released a trad alert to TickerTank Premier Members. The trade was “selling (to open) SPY Sep11 112/113 Put Spread”. We filled @ 0.35. We decided to take profits this morning as a result of yesterday’s rally (and volatility decay) and this mornings upside continuation. About an hour after the exit, it dawned on us that although we booked a nice profit we missed a potentially great opportunity to leg in to an Iron Condor.
For example purposes, let’s pretend are still holding the SPY Sep 112/113 Put Spread from 0.35. This gives us a lower break even right at the consolidation support level in SPY, but what if we added a Bear Call Spread here?
The optimal Iron Condor based on the range in SPY is 112/113/123/124. The current price if we entered that spread right now is 0.40. If we instead added “selling (to open) SPY Sep11 123/124 Call Spread” to our existing 112/113 Bear Put Spread, we would be in better shape.
The 123/124 Call Spread is selling for 0.30. If we filled at that price, we would be holding the 112/113/123/124 Iron Condor from 0.65 (0.35 put spread entry + 0.30 call spread entry) instead of from the current market price of 0.40. That’s a price improvement of 0.25!
By legging in we accomplished a few goals…
obtained much better pricing on the spread
moved lower break even 25 cents lower and upper break even 25 cents higher, in turn increasing the probability of expiring within the b/e range
placed ourselves in a 60% probability of success situation with pricing that would usually present a probability of success more along the lines of 35%.
As you can see there are many benefits to legging into an Iron Condor. It is not often that you have a market environment that is optimal for this, but it appears we may have one now.
We will be looking for opportunities throughout the next few weeks to leg in.
So to recap, here’s the optimal way to leg in to an Iron Condor.
Establish a range in an optionable financial instrument
Sell to open a put spread once the instrument is at or near range support (do the opposite if it reaches range resistance first)
Sell to open a call spread once the instrument is at or near range resistance (do the opposite if it reaches range support second)
Hold the position while watching price action in the instrument. Allow time & volatility premium to decay while the instrument hopefully churns around in the range.
Exit the position a few day prior to expiration, or leg out of the position if the opportunity to do so presents itself.
Vertical Spreads How To, Part 3: Maximum Entry Price
We’re back with part 3 of our Vertical Spreads How To series. In part 2 we discussed our minimum entry price rule of one third the width of the spread. Now let’s take a look at the maximum entry price rule.
What is the most you will pay when entering a Vertical Spread?
When you are considering maximum price on entry with a vertical, you are looking at an aggressive spread. Therefore, you will be looking at buying a Debit Spread. The most we pay for a Debit Spread 99% of the time is half the width of the spread.
Let’s look at a few examples…
If we’re looking at a bullish SPY spread on this mornings weak opening, we may be looking to buy the 114/115 Call Spread. Since the width of the spread is 1 (115-114), the most we would be willing to pay is 0.50, or a $50 debit per spread.
Let’s say we’re bearish on Gold here and want to play it via a GLD vertical. We’re confident in our direction, so we want to play a bearish Debit Spread. We may buy the 182/185 Put Spread. This spread is 3 points wide (185-182), so the most we would pay is 1.50, or $150 debit per spread.
We cap ourselves out at half the width of the spread because anything above that is getting a bit too aggressive from a probability perspective. generally if you are paying half the width of the spread, your probability of success is 50% (give or take a few percentage points).
Per our experience, it’s not worth pursuing a spread that offers less than 50% probability of success for obvious reasons. Frankly, we sell Credit Spreads with 55%+ probability of success more often than anything else.
The math is easy, pulling the trigger on the trade is the hard part. That’s why we’re sharing our Vertical Spread rules with you, we hope this will make you more confident in your trading abilities. In turn, we hope that leads to higher trade frequency which hopefully translates to increased annual income from trading.
Get Tasted!: Bookmarked @tastytrade on the Ultimate Trader's iPad 2!
Rather than adding an app to the Ultimate Trader’s iPad 2 today, we are bookmarking one of our favorite new sites…tastytrade.com!
tastytrade is an online financial network that is growing extremely fast. It was started by thinkorswim Founder, Tom Sosnoff, and is already taking market share from big dog financial content companies like CNBC & Bloomberg. tastytrade has been around for about 7 months now, and we have a strong feeling this is the beginning of something special.
Get Tasted! is tastytrade’s online financial talk show. Tom Sosnoff & Tony Batista are veteran Options Trader’s that talk their book, discuss the market, explain Options strategies, and make real trades live on the air.
The live video talk show is comprised of several financial based segments. Opening Bell, Good Trade/Bad Trade, Good Exit/Bad Exit are a few examples. All of the financial segments provide actionable ideas to retail investors, and the information shared on this show is extremely valuable. Heck, we’ve been listening as often as possible and must admit we have learned quite a bit!
Get Tasted! is not just a financial talk show though. There are light hearted segments like About Last Night where Tom, Tony, and the rest of the crew discuss their activities outside the office. In the Daily Dose segment, entrepreneurial and market related news items are shared and Tom & Tony provide their thoughts (always an interesting part of the show). Good Sport Bad Sport includes established Chicago sports radio personality Mike North and keeps listeners informed about the world of sports.
All in all, tasty trade is a great package of fun, quirky, and valuable. It’s a nice change of pace from CNBC & Bloomberg, and we can’t get enough! Bookmarking tastytrade on the Ultimate Trader’s iPad 2 was a no-brainer.
If you haven’t entered to win the Ultimate Trader’s iPad, click here for details and enter to win today!
When trading Credit Spreads, is there a minimum entry price one should consider?
We live by a simple rule when it comes to Credit Spreads entry prices; never go below one-third the width of a spread.
This is an easy rule of thumb to live by because the math is so simple. Let’s say you are entering a 9/10 Bull Credit Spread in UNG. The width of the spread is 1 (10 minus 9), so the minimum price we would enter this spread for is 0.33.
If the spread is 2, the minimum is 0.66. If it’s 3, the minimum entry credit we will accept is 1.00.
You get the point, but just to make sure let’s use yesterday’s AAPL examples. A few spreads were 5 points wide, so the minimum acceptable credit would be 1.65. There were also a couple 10 point wide spreads in the mix, in which case we would accept no less than 3.30 as a credit.
The reason we have this rule in place is simple. An entry price less than one third the width of the spread is too low to warrant putting the spread on when you net out commissions. The money you stand to make net of fees does not compensate enough for the capital you have at risk.
For example, let’s say you enter a spread with one point width at 0.20. This means your maximum potential gain is $20 per spread. Let’s say your commission is $3 per contract. This is a two-legged spread so your commission on entry is $6, meaning you max potential gain is $14 in the absolute best case scenario. Now if your spread was profitable but you were forced to exit prior to expiration, you would have to pay another $6 per spread to get out, making your round trip commissions $12 per spread and netting your max potential gain down to $8 per spread. Considering the max potential loss of $80 + entry commissions in this example, this just isn’t a situation worth pursuing in our opinion.
Remember, this is not a rule that is set in stone. It is simply a rule that we use, as well as many other successful Trader’s we know. It makes sense, and is worth your consideration.
Given the frequency in which we trade and talk about trading Vertical Spreads, we receive questions about this strategy all the time. There are a few questions that come up very frequently, so we thought it would be a good idea to tackle them in a three part “Vertical Spreads How To” series.
In this part 1 post, we are going to tackle the following question…
How do I decide whether to place a Debit Spread or a Credit Spread?
It all depends on how confident you are in the position. Vertical Spreads are directional by nature. That said, you can give yourself a little cushion if you are not extremely confident that the direction you are playing will come to fruition. If we are confident in direction, we will use a Debit Spread. If we feel good about the direction, but have a little concern as a result of a few technical parameters or price levels, we will go with a Credit Spread.
Here’s the lay down using AAPL as an example (current price is 381.11):
Confident Bull: Call Debit Spread with short strike closest in the money strike offered and long strike slightly out of the money (closest strike or the one below that). So with AAPL at 381.11, we would buy the Sep 380/385 (buy 380 call, sell 385 call) or Sep 375/385 (buy 375 call, sell 385 call) Call Spread.
Cautious Bull: Put Credit Spread with short strike one or two strikes out of the money and long strike one or two strikes below that. The “Sell to Open” AAPL Sep 380/375 (sell 380 put, buy 375 put) or Sep 375/370 (sell 375 put, buy 370 put) Put Spread would be the first two we would analyze here.
Confident Bear: Put Debit Spread with short strike one or two strikes out of the money and long strike closest in the money strike. In AAPL’s case 381 is so close to the 380 strike that we would make 380 our long strike rather than 385. We would look to buy the Sep 375/385 (buy 380 put, sell 375 put) or 370/380 (buy 380 put, sell 370 put).
Cautious Bear: Call Credit Spread with short strike one or two strikes out of the money and long strike one or two strikes above that. The “Sell to Open” AAPL Sep 385/390 (sell 385 call, buy 390 call) or Sep 390/395 (sell 390 call, buy 395 call) Call Spread would be the first two we would analyze here.
This gives you an idea where to start when considering a Vertical Spread. These are general rules of thumb and should not be set in stone. There are times when volatility premium is extremely high allowing you to give yourself more cushion. We will discuss these opportunities as well as other rules we have in place later in this series.