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What a wild week…
The market closed the week up the DOW closed above its 200-Week MA since mid-June. However, while all of ST price action is positive, the volume is not. This week’s volume that led the DOW to a close just barely above its 200-Week MA was lower than last week’s.
Though the ST trends are showing promise as they head into, and in some bases through, ST resistance levels, the volume on up days continues shrinking.
This still is a market very much on the edge, and it is very difficult to predict what it might do next. And some complacency has also set in as the market bolts 200 - 300 points higher one day, and then 100 - 200 points down the next… That would suggest a higher VIX level than we are seeing and it just continues to fall.
That is a bit troubling. It just seems like we need to see some big, strong move in some direction sometime soon.
But maybe we’ll just keep slogging along higher or sideways until real trading returns in September…? The the real fun will start.
Everyone have a great weekend.
Coach BD
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2 users comments " 8/7 - Weekend Commentary "
August 11 2008
GIFI - What to do? Last week, I bought (3) GIFI Sep 35 Puts @ 1.50 for $450. Unfortunately, GIFI is very thinly traded with wide BxA spreads (a MM’s delight) and is a Theta Pig. At this point, I don’t believe in this trade anymore. Choices: Let it expire. Sell the (3) Sept Puts at the current ask ~$80 and take a loss of ~$70 per contract. Sell (1) Sept 35 Call ~$5.90 to morph the original trade. How can this position be traded to minimize a loss?
August 11 2008
Leo,
Even though this is not one of our trades, I will be happy to go through this trade with you for the benefit of our membership.
GIFI - What to do? Last week, I bought (3) GIFI Sep 35 Puts @ 1.50 for $450.
[Coach BD] Where the hell did you get this trade… LOL. Did you enter this spec trade on the break below the recent lows…? …which was a new 4 month low… and if so, when it made that strong intraday turnaround didn’t that big volume near the end of the session the day before (8/5) and early in the session on 8/6 suggest to you the stock was probably making a ST bottom…?
Unfortunately, GIFI is very thinly traded with wide BxA spreads (a MM’s delight) and is a Theta Pig. At this point, I don’t believe in this trade anymore. Choices: Let it expire.
[Coach BD] NO… that’s not an option. If you don’t believe in the trade then it’s time get out…period. Why would you let a spec trade that you wouldn’t enter today just waste away to nothing…?
Sell the (3) Sept Puts at the current ask ~$80 and take a loss of ~$70 per contract.
[Coach BD] That’s the play if you don’t think it’s a viable trade anymore. Although, this stock doesn’t exactly ooze strength. Volume to the upside is declining and all of the ST trends have either rolled over or in the process of doing so. It could well head lower from here, so you’re inclination on this trade isn’t without merit.
I would just point to the fact that…
1) You didn’t give your trade enough time…
2) Buying OTM, unless they are really cheap, are not usually reliable success-prone strategies.
Sell (1) Sept 35 Call ~$5.90 to morph the original trade.
[Coach BD] That action does NOT morph the original trade. It actually makes it worse if you don’t think the stock is going lower from here. That action would be making the trade a synthetic SHORT with far more risk than your current limited risk OTM Spec trade.
How can this position be traded to minimize a loss?
[Coach BD] Choice #1: Sell it and take your medicine.
Choice #2: This actually looks like a fairly decent opportunity to make some regular income as it continues it’s trend downward, or upward. We could discuss if you want. Send me a note with a time you are free. I could do this afternoon at 4:30 if you are free, or tomorrow after the close is a possibility…
Coach BD