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TGIF
Welcome to :
What’s area 51?
Area 51 is where all the prop trading and HFT (High Frequency Trading Hedge Funds) firms live. What prop trading? Its short for Proprietary Trading desks of all the big major wall st firms. You know the ones who tell you to buy and hold over the last 11 years with a net result of nowhere via 401k’s a Modern virtual portfolio theory. While at the same time those firms PROP DESKS are doing exactly the opposite via lightning fast trading. Go look at any of the big Investment banks quarterly reports and guess where all theyre profits are coming from. You got it Proprietary trading of they’re own accounts.
Consider this mornings opening big up and big down as a:
WE ALL JUST GOT PUNK’D MOMENT.
Below is the opening volley chart
Let me explain. Ever wonder why on Fed Day’s that right after the Fed Announcment the market goes up big and then right away down big before it settles in? Simple, there are traders out there who STRADDLE THE EVENT.
This means they have at the money (or some variation there of ) Long Calls and Long Puts but more likely futures as that is where the really big money trades, I use calls and puts as the example as people understand them a bit more. Why futures vs options? No spreads or time value.
Moving on, we get a big reactionary move to the upside and they immediately sell those calls/futures that they just made a profit on. But at that moment they are under water on the put side/short the futures side of the equation right?
When they sell those calls/futures it immediately pushes the market down and while the market is being pushed down care to guess what happens to those put options/futures they were short that they were under water in when they locked the gains of the calls? You got it- break even or a gain.
Fast forward to today’s opening bell. Same deal, today’s report was straddled the same way that fed days occur. Of course now these guys are gone and done for the day if need be and then the market settles down to its own devices. Keep in mind that while this is going on nervous nellie and highly emotional types are freaking out. All of which creates more turbulence by the way and now you know why you get what you get on this current climates news driven events
Now some of you may say thats all bad form and no fair but folks? Its shark week and these guys are the sharks that create all the anxiety. And I agree but they are here to stay, they are an investment stradegy and for now this is america and capitalism is still the somewhat law of the land.
So what do we do about that? No clue excpet to say that by understanding this type of stradegy (Prop Trading/HFT Area 51ers ) it allows you to better manage your emotional state. Knowledge Is Power When Used Effectively. For me its just another reason not to get overly emotional.
As for the markets?
Yesterday the two year treasury in a flight to safety in the face of fear pushed the yield down to 0.27% !!!!!!!!! I mean why bother. If that is not a capitulation characteristic I don’t know what is! I even heard at one point the yield was negative! THAT’S what panic looks like and exactly what one wants to see after the market has already crashed.
No lets move on. Believe it or not pressure is being relieved. First it was the debt ceiling, then it was recession/economic fears. Now we have the ECB and the EU debt issues. When you had all three of those together at one time going on? It just amps up the fear and volitility and you get what you got, a fast and furious blink your eye mini crash.
So now what. Well its no secret there has been a lot of technical damage done that is going to take a lot of time to repair itself and won’t happen overnight.
Short term we are extremely overstretched and remember rubber bands do snap back (so do swimmers when bit by sharks, some anyway) , Its when that snapback takes place THAT is when we want to be on the lookout. Let the market chew around down here and shake the tree which could be a few days to suck up supply. Then we watch for a snap back rally back up to resistance (1250-1260 SPX)
When that occurs? We walk away from our long holdings and jump on the names that didnt get it the first go around for shorting purposes BUT NOT TILL WE SNAP BACK! What names havent really gotten it the first go around? SODA,LULU,FOSL, AMZN,CMG and the like (which all by the way look decent for one who buys major panic) . I repeat, we need to see these stocks rally and put in some sort of topping pattern. Think first Thrust down, snap back rally bombs away bear channels.
At this point selling here is futile and after the fact. BUT for those who like to chase buses here is a stock that is on a tear lately and extended.
Any takers? Anyone interested in buying this chart? If there is one thing we’ve tried to instill in you it is to NOT chase buses. Below is the same chart without the name covered up.
What does this all tell you about the short side of the market here folks?
It sayes stay away! You are chasing a bus.
Right now one really has to just sit back at these levels and let it finish running its course.
Every Indicator I track is screaming right here which tells me in all reality I should be buying the pants out of a lot of names. Take a look at AAPL for one. This is THE kingpin of the market and all its doing is Pulling back Off Highs right back to support.
We’ve got a lot to talk about this weekend. We’ll try to cover as much as possible about where we are, what next, what happened and the like. If you’ve made it this far consider yourself as having lived thru a crash.
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Short Side Coming Attractions
On a snapback rally up to NEW resistance I’ll have a ton of names setting up. Lets get to the snapback rally mode first. My gut sayes it’ll be fast and furious and wicked just like we’ve been seeing since first of the year.
Keep an eye on SODA and over the weekend we’ll layout the pattern of choice for you all with regards to shorting.
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LONG SIDE WATCH LIST
"Only The Best And Forget The Rest "
"We Trade What We SEE, NOT What We Think, Hear Or Fear "
Remember the name of the game is Pullback Off Highs (POH) AND FIRST THRUST UPs as they are the only patterns you’ll ever need.
SINA
NEW NAME
Gets deleted
WYNN
Gets deleted
TIBX
8-5 Well if one wanted to take a longside scalp today’s lows were the time to do it.
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FEATURED BUT NOT TRADE TRIGGERED BY US
This is where names that we have on our watch list that have triggered but for whatever reason we did not take them (can’t do them all) in our trade trigger alerts. This section is because a lot of our subscribers opt to use our information as they see fit from a do-it-yourselfer standpoint.
LONG SIDE
JVA
A retest of its highs makes this a great short sell in a snapback rally.
SLV
GLD
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All About Options In The World According To All About Trends
Over the weekend we posted an article in this space entitled:
OPTIONS — Your best friend and worst enemy
That article is at the bottom of this newsletter for reference anytime you need it.
NOTE: The exchanges recently started WEEKLY EXPIRATIONS of options. Going forward, make sure that you check to see which ones you are buying. Let’s stay with traditional options expirations which are the ones that expire the 3rd Saturday of every month.
Current Holdings
VMW September 90 Calls to open (We are now long 1 Sept. 90 call at 12.30 5 as of 8-1-11)
As we post they are currently trading at 5.60
NOTE: In the trade alert on 8-1 this issue in the header showed a Aug. 90 call option. No biggy if you bought those as we’ll post them here in this space as well.
As we post the Aug. 90 calls are priced at 3.40
CRM August 135 Calls to open (We are now long 1 Aug. 135 call at 14.05 as of 7-28-11)
As we post they are currently trading at 7.85
NFLX August 235 calls to open (We are now long 1 Aug. 235 call at 25.75 as of 7-26-11)
As we post they are currently trading at 16.10
TSCO August 60 calls to open (We are now long 2 Aug. 60 calls at 7.50 as of 7-21-11)
As we post they are currently trading at 1.85
ARBA August 30 calls to open (We are now long 2 Aug. 30 calls at 5.20 as of 7-19-11)
As we post they are currently trading at .30
MAKO August 25 calls to open (We are now long 2 Aug. 25 calls at 6.70 as of 7-19-11)
As we post they are currently trading at 1.40
NANO August 15 calls to open (We are now long 2 Aug. 15 calls at 4.10 as of 7-13-11)
As we post they are currently trading at .50
ENTG August 7.5 calls to open (We are now long 2 Aug. 7.5 calls at 1.50 as of 7-13-11)
As we post they are currently trading at .45
NXPI August 20 calls to open (We are now long 2 Aug. 20 calls at 3.70 as of 7-13-11)
As we post they are currently trading at .15
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
NOTE: As we post the bulk of our names are reversing to the upside quite fast which throws off all these charts. At this point remember its all about a snapback rally THEN we opt to hold or fold.
BWLD (We are now LONG 200 shares at 65.02 as of 8-1-11)
HOG (We are now LONG 200 shares at 44.00 as of 8-1-11)
VMW (We are now LONG 125 shares at 100.09 as of 8-1-11)
8-5 As I post, this issue is now right back up to 90 a share from 85 this morning!
CRM (We are now LONG 100 shares at 146.01 as of 7-28-11)
8-5 As I post this issue is now back to 138!
NFLX (We are now LONG 50 shares at 256.54 as of 7-26-11)
8-5 As I post this issue is now back to 246.50
TSCO (We are now LONG 200 shares at 65.85 as of 7-21-11)
8-5 As I post this issue is now back up to 60
RAX (We are now LONG 200 shares at 43.42 as of 7-19-11)
8-5 As I post this issue is now back up to 36.30
RUE (We are now LONG 200 shares at 33.69 as of 7-19-11)
8-5 As I post this issue is now back up to 30
ARBA (We are now LONG 200 shares at 34.56 as of 7-19-11)
8-5 As I post this issue is now back up to 26.30
MAKO (We are now LONG 200 shares at 31.08 as of 7-19-11)
8-5 As I post this issue is now back up to 24.90
NANO (We are now LONG 300 shares at 18.71 as of 7-13-11)
8-5 As I post this issue is now back up to 14.90
NXPI (We are now LONG 300 shares at 22.96 as of 7-13-11)
8-5 As I post this issue is now back up to 16.00
ENTG (We are now LONG 300 shares at 8.71 as of 7-13-11)
8-5 As I post this issue is now back up to 7.80
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To our NEW SUBSCRIBERS
What we’ve tried to do is break our watch list down into chart pattern recognition structure from a visual standpoint. Learn the patterns and the components of patterns and you’ll blow those Wall Street MBAs away. You don’t need a $3,000 software program either. All you need is a BURNING DESIRE to be the best that you can be and we’re here to help.
We have a lot of new folks here and we thank you! We want you to take it easy, get to know how the routine works around here for awhile and to feel comfortable.
We hope you all aren’t here because you are chasing performance. For us it’s more about educating and making you the best you that you can be first (that’s what we focus upon!). Like many of our long time subscribers they have all found out that they have no use for traditional Wall Street (and we don’t blame them) and it’s our hope that over time you’ll have acquired enough knowledge from us to say the same with conviction.
One of the most important things we want to stress is that of RISK MANAGEMENT via POSITION SIZING. You don’t need to stack your account with just a few big positions as we’ve seen it time and time again that those who get into trouble are the ones who take large positions and do not employ any risk management system IE shoot for the fences. Those are the people who live on the fringes of extremes and yes ultimately get burned.
As a guideline a good initial system is that of the following example.
Let’s say you have a $100,000 virtual portfolio and let’s say that as a guide you never place more than 10% ($10,000) into any one position. Now let’s say that one day a news driven event hits (over which you have no control over anyway) and one of the positions tanks 20%. On its own that position is sporting a $2,000 loss, while that may seem devastating on its own its really no big deal overall.
Why? Simple its all about risk management being properly employed. What is the impact of a $2,000 loss to the TOTAL VALUE of the virtual portfolio in this example.
Answer: A whopping 2% LOSS. Now you know why we say no big deal.
We can also tell you new people here that you will get stopped out of names and you will take hits. There is nobody on the planet living that has ever hit 18 holes in one and there never will be. We’d rather get you grounded in reality right away vs talking about pie in the sky all the time like a lot of other sites. In so doing your head is screwed on straight from the start and when those days happen (and they will) mentally it won’t mean a thing to you. To us that’s what’s most important is YOUR state of mind as it’s your most important asset. We hope you appreciate our honesty.
We have a very good retention rate here at All About Trends and a lot of great outstanding people here. We like to think that a part of that is being upfront about what can happen (in both directions). Verses those up 500%, I turned $50,000 into $3 million or some other absurd number to get you to bite. That’s not who we are.
WELCOME ABOARD!
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Lastly with regards to taking any trade:
Remember the moment you take a trade you are at the mercy of the market and have no control except when to sell. If you are not willing to take the risk and are not willing to pay that price do not take the trade. We are willing to take that risk knowing full well the end result could be a loss. That said make sure that virtual portfolio management trade size is used accordingly. With any position you may take make sure that should something go awry the amount of total impact to your account does not devastate your acct. Try to stick to a 5% position That’s the key to virtual portfolio management, not biting off more than you can chew.
Remember the mechanics of reality with regards to the stock market states a stock can only do one of three things: Up, Down, Nowhere. The moment you hit the enter button you are at the mercy of the market therefore the only control you have is when to sell/cover. You can’t manage your gains as you have none to manage initially. Knowing this in advance it allows you to stay in outcome, that being you will either:
1. Make a gain
2. Wash
3. Get stopped out at a loss
Remember the market IS the boss. IT is going to do what IT wants to do.
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OPTIONS- Your best friend and worst enemy
Let’s talk about options for a moment. First off this is a big universe with a lot of advanced strategies and terms like theta, delta , straddles, butterflies and the whole gambit. For the purposes of this conversation we’ll keep it real simple and not try to get to deep.
We’ll approach it from simple buy puts (short side) buy calls (long side). The first thing I want to mention is that options attract the fast money crowd in hopes of turning 500 into 10,000 overnight. This is also the get rich quick crowd. And more often than not these type of people get broke faster than they get rich. Please don’t be one of them as greed kills.
Time and time again we hear from people who like to trade options, and time and time again we hear the horror stories too. When we hear the horror stories nine times out of ten we can guess as to why their option went to zero. Nine times out of ten it was because they bought out of the money options or at the money options. This is the reason why 80% of those who do options lose money by the way.
Sure there are folks who use out of the monies and at the monies but those are experienced traders that know the ins outs ups and downs.
You see the trick is to NOT pay for time. You want as close to a point for point move as possible with the stock because there is nothing worse than seeing your stock move yet your option does nothing or very little, know the feeling?
So for All About Trends we only want to look at IN THE MONEY CALLS OR PUTS and we DO NOT WANT TO PAY FOR TIME, sure they cost more BUT we want to be as close as possible to being able to see a point for point move with the stock.
We hate paying for time. We want true value without the time. We’re not saying our way is any better than others, we’re just saying it’s what works for us.
Now let’s touch upon how we would build a virtual portfolio dedicated to options and how to make it a piece of your overall virtual portfolio via allocation. Keep in mind this is more geared towards beginners so you advanced people might be bored with it but then again it never hurts to revisit the basics every now and then.
At All About Trends Trends we talk a lot about never biting off more than you can chew and trade size position management. We do that for a reason, we do it so as to when Murphy’s law shows up it never devastates us or blows us up. Typically we try to stay within a 5-7% position size when we do a trade. The same thing goes for options. If we were to start a virtual portfolio of options or shall we say allocate a portion of our overall virtual portfolio to options the way we would look at it is the following:
For example, let’s say the total value of your virtual portfolio is $100,000. The most we’d consider allocating towards an options strategy is 10% of the whole virtual portfolio. In this case $10,000. So now you’d have a $10,000 option virtual portfolio to work with. Now let’s say that you are the worst trader on the planet (we doubt that!) and you lose the whole option virtual portfolio, what’s the risk to the total value of the overall virtual portfolio? 10% in which case you live to play another day. Now let’s touch upon that $10,000 you allocated toward options. Let’s reduce the risk even further (and we haven’t even talked about what stocks to trade yet). Let’s take that $10,000 and split it up into no more than 10% ($1,000) can be allocated to anyone position as a guide. (Sometimes 1000 can get you 3-4 contracts you know). Now let’s say that one of those positions goes bust (and they will! and sometimes more than one at the same time we assure you.) What is the total impact to the overall options virtual portfolio? 10% right?
Now let’s take that a step further. What’s the total impact to the overall investment virtual portfolio of 100,000? 1% – that’s right 1 measly percent. When it comes to options you need to employ some sort of virtual portfolio risk management structure parameters as this way you can get in trouble and you don’t lose sleep – you just have a bad day that’s all.
As for getting rich overnight? Forget about it. That’s just a marketing ploy. As for taking 50,000 and turning it into millions? Ain’t happening overnight but it sure sounds good doesn’t it? And that is why people bite on those marketing ploys.
As for time? We never go out months. As a swing trader we’re in positions for only a couple of weeks best case so why pay for the time to go out further in time when you don’t have to. When the stock moves whether it’s right away or not they sure seem to suck that time out of you just as fast anyway right?
Typically we’ll look at the front month (current month) or the next month but not months. When we say front month if options expiration is a week or sometimes even two weeks away we’ll look out to the next month and not the current. While time is our enemy in most cases, in this case it’s your friend. It’s just that you don’t want to pay for it
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SUBSCRIBER ONLY WEB SITE
Don’t forget you can view updates in the middle and the end of each trading day complete with current charts, along with our current performance at our subscriber only web site.
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