Ford long term short 0 cost option play

1) A demographics expert, Harry S. Dent, declares auto sales have hit a generational peak this year.

2) The weekly chart shows a clear down trend.

3) I can short Jan 2017 F 13 Call for about 1.85, buy the 15 Call for about .85 for a $1 credit spread.

4) I can use the $1 credit to buy a Jan 2017 F 13 Put (maybe pay .05 - .10).

5) My cost of entry is near zero.

6) My risk is the $2 strike spread.

7) If I use the all time F low of 11/2008 of about $1 as a target, then the reward would be about $12 (13 strike minus 1). 

8) So, $0 to enter and 1:6 risk:reward. 

Looks too good to be true, if you want to short Ford. 

USDA Forecasts Third Largest Corn Crop on Record

Well, that didn't turn out very well. On a technical basis everything was working and we came close to our target, but yesterday a surprising USDA crop report came out with a much bigger than expected corn yield ("USDA Forecasts Third Largest Corn Crop on Record" http://www.nass.usda.gov/Newsroom/2015/08_12_2015.asp) and futures tumbled.

As we know, not all trades are winners. You might conclude we should have closed the position ahead of the report, or count it in the group of losing trades and just move on to the next one.

The options are pretty much worthless now, so I'll look to sell them on a 50% Fib retracement of the recent down move.

Corn finally popping

Good day for corn. Reset target to 396, just below the 200 SMA. Plenty of room on the stochastics for an upward continuation. Also entered a limit order for $5. Whichever triggers first is good enough for me. Don't want to scale out because there's not much time to expiration, so Theta time decay is relatively high.

My original purchase was at 5 1/2 for the Sep 4.25 Call on 7/23/15. I got an additional amount on 7/27/15 for 1 7/8 because the futures price hit the 78.6% Fib and previous resistance. So, my average cost per option is (5 1/2 + 1 7/8) / 2 = 3 11/16.

Corn consolidating

Sep Corn is consolidating around the 78.6% Fibonacci level, and previous consolidation from May/June. The big question is whether it bounces (which is what this trade is counting on) or continues the down trend. The very low stochastics suggest a possible bounce.

If we do get a bounce, we need it to bounce soon before the options expire 8/21/15 2:15pm ET.

Added more Corn calls at 78.6% Fib

Corn Sep 4.25 Call purchase triggered yesterday when futures price hit both the 76.4% and 78.6% Fib levels. Looks like it may be starting to bounce. Will be interesting to see what happens by the close today.

76.4 is popular but not an actual Fib. For more on this, Google "76.4% vs 78.6% Fibonacci".

Corn dropping further before expected pop.

Sep Corn has dropped below the 50% Fib as well as the 61.8% Fib. Entered order to buy more of the same options if corn drops down to between 374 to 371, which is near the 76.4 and 78.6 Fib levels as well as possible support at previous swing highs (resistance) in May and June.

Corn looks ready for a little pop

Sep Corn Futures ZC at 200 SMA and 50% Fib of previous rise on very low stochastics. Got 25% Delta Sep options: 4.25 Call for 5 1/2 ($275). If it continues down to 61.8% Fib I'll add a lower strike Calls.

AAPL wedge update 4/28/2015 Final Update

Added a stop at the previous target of 133.60. AAPL opened at 134.46 and went straight down and hit my stop. Position sold for $4.26. I had bought the condor for $4.25 (see http://jmstweets.blogspot.com/2015/04/aapl-wedge-irresistable.html). So, after all that I broke even. Oh well, beats losing. On to the next trade.

AAPL wedge update 4/27/2015 Earnings Report

During the day before the close, I was ready to sell the condor if AAPL hit my target of 133.60. It came close but no cigar.

After an earnings report (ER) beat (actual quarterly results better than expected by analysts), AAPL went up to about 135 when I captured this screen shot.

Near the close I looked at the cost of an At-The-Money (ATM) Straddle (that was a 132 Call plus a 132 Put), which cost about $7. This is considered the market's estimate of how far AAPL might move in response to the ER. So a beat might cause a move up to 132+7=139.

So I changed my sell order from the original target of 133.60 to 139 to take advantage of a positive move tomorrow. But I will be monitoring it very closely. If it starts to drop quickly at the open after gapping up, I will sell it right away. If it meanders around a flat line I'll move up a stop just under that level. If it starts rising, I'll watch the 10 minute chart and sell at either the new 139 target, or a 10 minute candle closing below the 8 EMA (Exponential Moving Average).

Now that I have a game plan I don't have to wonder what to do or second guess myself in the heat of battle tomorrow.

See previous 2 posts on this subject.

AAPL wedge irresistible update 4/23/2015

Setting a break out level of 127.60 and moving the wedge width measurement at the mouth (seen in previous post) to the break out point, then calculating an 80% of that distance gives us a target of 133.72. Notice the previous swing high is 133.60, which is very close, reinforcing this level as a target.

Looks like we're getting a Bollinger Band (BB)/Keltner Channel (KC) squeeze breakout. Expectation is about another 7 candles in the same direction, but we still need to close today with the BB outside the KC. I'm posting this about 11:00am so we still have 5 more hours to the close. To identify these indicators on the chart, see my previous post
http://jmstweets.blogspot.com/2015/04/my-standard-chart-indicators.html

Earnings Report (ER) is scheduled for 4/27/2015 after the market close (AMC). If I had only a long position I would exit before the ER. But since we have a non-directional condor we can hold through the ER if we want. However, if we're close to the target before the ER I'll probably exit because I don't want to drop to a level between the condor wings and go flat until expiration, which would result in a loss.

Nothing so bullish as a failed short setup

I heard this quote today from Steve Rhodes on TFNN "Nothing so bullish as a failed short setup".

www.tfnn.com/SteveRhodes.php

I took a look back at the QIHU chart (above), and boy does that quote apply here. Next time a great bearish setup fails, rather than just exiting the trade, I'm going long.

My standard chart indicators

Guess I should have already defined the indicators on my chart. I'll do it now.

Thick white line: 200 Simple Moving Average
Thin white line: 200 Exponential Moving Average
Thick red line: 50 Simple Moving Average
Thin red line: 50 Exponential Moving Average

Thick green line: 20 Simple Moving Average
Thin green line: 20 Exponential Moving Average
Orange line: 8 Exponential Moving Average
Pink line: 3 Exponential Moving Average
Light blue lines: Bollinger Bands
Dark blue lines: Keltner Channel
Straight white line segments: Trend Lines or Support/Resistance Lines
On the bottom is Volume and Stochastics(12,3,3)

AAPL wedge irresistible

AAPL is in a wedge since the beginning of March. Got May 130/140 Call, 120/110 Put Condor for $4.25. AAPL Earnings Report is 4/27/15. Would have gotten a 30 Delta Strangle but IV is a little high relative to past 12 mo. The literature says these wedges (aka triangles) break out around 65-75% the way to the apex. We look to be right about there.

I thought the FOMC minutes release at 2:00pm ET today might have moved the stock, but it was a non-event. AAPL might continue to tighten up into the apex around 125 until its Earnings Report, if it doesn't break out before hand.

Having spreads instead of a long Strangle should help with Theta decay as well as the previously mentioned somewhat elevated IV.

Had to exit the QIHU short trade

Previous candle closed over the 8ema and over the downward trend line but under the 50sma, so I gave it another day. Today it had a strong day and was closing over the 50sma, so I had to exit the short position. If it comes back down into the wedge I'll re-short it.

I've heard a quote from a famous successful trader saying that the secret to his success is that he is willing to take many small losses in pursuit of bigger wins. This QIHU trade is an example of being willing and disciplined enough to exit a trade at a loss if it doesn't develop as expected. And before it turns into a big loss. This was a great short setup and I don't think I did anything wrong. This is just one of the trades that didn't work out.

Every methodology I've ever learned came with the caveat that no strategy has 100% success rate. The trick to trading is finding a system that makes more than it loses, then follow the system.

QIHU short position update

QIHU is testing resistance. Looks threatening but waiting to see if price is rejected from here or breaks out and closes above it.

Twitter handle: JMSTweets

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QIHU short 3/27/15

Brief description:

QIHU, Earnings 2015-05-27, Enter $52.00, Target $42.50, Stop $55.50, Risk/Reward  3/8, Shares per $100 Risk 29, Money Employed $1,485.71, Return on Risk 18.3%, Notes: May 50 Put. Bounced off 50MA. Bounced off TL. Bearish Engulfing. Stochastics very high. Stochs crossed down. Below 50 DMA. Ichi: Chikou in the clear. Ichi: Kumo overhead. Ichi: Kumo future bearish.

Detailed description of short setup:

4 indicators that all suggest a down move is coming, but I should wait for 1 more as confirmation. However, the 1st 4 look so good I got in early. Here are the 4 indicators:

1) Price bounced off a Trend Line (TL) yesterday (TL connects highs on 11/25/14, 2/6/15, 2/13/15, 3/26/15),

2) The Trend Line is coincident with the 50 day Simple Moving Average, so it also bounced off that,

3) the 50 SMA and TL were also coincident yesterday with a 50% retracement from the 2/6/15 high to the 3/10/15 low (50% Fibonacci number), so it bounced off that too,

4) Stochastics peaked in the over bought condition yesterday and started rolling over today.

The confirmation I should be waiting for is a closing print below the 8 Exponential Moving Average. I'm expecting that to happen early next week. My target is another TL connecting the lows of the following dates: 10/13/14, 10/15/14, 12/17/14, and a bunch of dates from 2/26/15 - 3/16/15. I'm estimating price will hit that lower Trend Line again around $42.50.

Since this is my first post, here's an explanation of the "Brief Description":

"Earnings" is the date of the most recent or the next upcoming Earnings Report.

"Risk/reward" says that for every $x of risk if it hits the stop, you get $y reward if it hits the target.

"Shares per $100 Risk" means given the entry and stop, if you want to risk $100 then buy n shares. Of course you can buy multiples of this or maybe half this to risk $50.

"Money Employed" is how much money you tie up buying n shares.

"Return on Risk" is (Reward * #shares)/money employed.

"Ichi" is an abbreviation for Ichimoku Kinko Hyo. A Japanese trading style.

I like to max the risk/reward, min the money employed, and max the Return on Risk.

In the "Notes" section if you see an option then I'm entering the trade using that option rather than the stock. If no option is mentioned then I'm using the stock.

Also, I should say I'm not an adviser of any kind and the only license I hold is to drive my car. I have no idea whether any trade I post will actually be profitable or will lose money. I just believe the risk/reward warrants taking the trade for me. I started this blog for a few reasons but none are to suggest any particular trade is suitable for any particular reader.

All reader comments are welcome if they are civil.