August 19th, 2009
"This book provides a realistic look at trading commodity options without the textbook theoretical approach trotted out in many options trading books. It is a valuable book for all option traders." ~ Your Trading Edge Magazine, in reference to "Commodity Options" written by Carley Garner
Going nowhere fast
Equities have failed to make progress in either direction despite some impressive selling pressure and equally swift short covering. Choppy price action combined with the upcoming option expiration and notoriously thin seasonal trading volume makes for a tough market to trade.
If it weren't for the weekly crude oil inventory report, it may have been a rather devastating day for equities. Futures traded considerably lower in overnight trade and looked to be headed toward the mid 960's before news of a decline in the nation's oil inventory. The market saw this as a sign that increased demand for crude oil and indirectly a pickup in economic activity.
Aside from oil inventories, there weren't any significant economic releases today. However, Warren Buffet's change of heart in regards to the deficit did get some attention. The Oracle of Omaha believe that the government was justified in using any means necessary to stave off another Great Depression. However, he now sees the recovering economy as a warning signal that the Fed will need to change its ways. He warns that the out of control spending could destroy the greenback and many American's life savings. He noted that Congress is spending nearly twice as much as it is taking in and the U.S. debt is growing by 1% a year.
The lack of news left traders looking to technical analysis for help but indecisive trade likely lead to frustration. We see 991 as the pivot area for the September S&P and today's close above it leaves us leaning slightly higher. However, recent gains on super light volume leaves us lacking confidence. Therefore, we will refrain from trying to pick a direction in a market that seems as though I could get better odds shooting craps down the street (I live in Vegas). Instead, we like the idea of waiting for a rally to the 1020 area as a place to be a bull or a dip to the mid to low 960's to be a bear.
The NASDAQ and the Russell seem to be positioned a little better for the upside. We may reconsider being bearish the NASDAQ on a move back to the mid 1630's and the Russell near the mid-580's, but wouldn't be willing to jump in front of the bus should momentum build up.
If you are following our trade recommendations below, we are still holding the short S&P strangles which are beginning to work out nicely. You should have been out of the NASDAQ trade last week, but if you managed to hold on a bit longer you might have made out much better than we had recommended. The long S&P puts for August turned out to be a losing proposition, but that is why we normally prefer selling options over buying them.
I apologize for not sending out a newsletter yesterday, I have been swamped with the production of my second book "A Trader's First Book on Commodities", which is now listed on Amazon. If you haven't picked up a copy of the first, "Commodity Options", it is also available on Amazon at a great price!
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations are based the full sized S&P unless otherwise noted.
S&P 500 Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
July 22 - Buy cheap August S&P puts. We like the 880's and the 885's, you shouldn't pay more than $6.50
July 15 - We like selling the August 975 calls, fills ranged from $7 to $9 today.
- July 28 - We recommended to sell the 925 puts for a little over $8 to take a bit of the heat off of the 975 calls
- July 29 - We recommended to buy back the 975 and sell the 995 to give the trade a bit more breathing room and lower the delta
- August 5 - We recommended to get into a more comfortable position ahead of the employment report by buying back the 925/995 August spread and selling the September 940/1045 spread for a credit of about $3.
Russell Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
Flat
Please note: A mini-NASDAQ chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.
NASDAQ Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
July 28 - Sell the e-mini NASDAQ at 1630 or better.
- August 3 - We recommended to buy an August at the money (1630 call) for about $600, this limits the risk of the trade to the premium paid for the option plus commissions and fees.
- August 10 - We like the idea of trying to take a profit on the futures contract near 1580.
- August 11 - If you weren't able to exit on the dip this morning, look to exit the futures shortly and hold on to the call option (if you bought it).
- August 12 - We recommended to try to sell liquidate the long call tomorrow near break-even if possible. If not, take what you can get.
- August 13 - You should be completely out of this trade...and may have done well depending on your exit prices.
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
1-866-790-TRADE
Local : 702-947-0701
http://www.carleygarnertrading.com/
http://www.decarleytrading.com/
*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
There is substantial risk of loss in trading futures and options.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
