October 2nd, 2009
Like what you see? Pick up a copy of Carley's book "Commodity Options" at any major bookstore or online outlet!
Bounce?
The highest unemployment rate since June of 1983 sparked another round of early morning selling pressure. However, as calmer heads prevailed the indices were able to recover from the lows.
The unemployment rate was reported in line with expectations at 9.8%, still below the benchmark 10% but dire nonetheless. For those of us in Nevada, and a few other hard hit states, the rate is between 13% and 14%. What was a surprise to the market was a larger than expected decline in non-farm jobs. The U.S. economy is believed to have lost about 263,000 jobs in September, much greater than the 180,000 consensus estimates.
There is no getting around the fact that the day's news was bleak but it wasn't a complete surprise either. Accordingly, the "payroll panic" in early morning futures trade seemed to be more emotion than anything. In reality, we have dropped from a high of 1065.75 in the e-mini on Tuesday to Friday's low of 1012 and the market went from being overbought to oversold in a matter of a week and a half.
We aren't necessarily bullish but we don't think that the decline will be straight down either. The market may be setting up for a bounce to the mid to high 1040's.
Our clients were advised to sell puts into the volatility this morning...so far, so good but we will see what Monday brings. Specifically, they were recommended to sell the November 890 puts. Fills were coming in from $9.50 (or about $475 per e-mini option minus commissions and fees) to $9.25. We feel good about the trade simply because there is a substantial amount of room for error. At the time of this email, the reverse break even on this trade was over 140 points out-of-the-money. In other words, we can be wrong by this amount and still not lose money on the trade at expiration. The downside of this strategy is the fact that beneath 890 the risk is similar to that of a futures contract and the maximum profit potential is equal to the amount collected. That said, the odds seem to be in favor of this trade....and should the market rally in the near term, we will be quick to take a profit and remove our risk from the table. If you are interested in these types of option selling techniques, you may be interested in my book "Commodity Options" available through all major book outlets.
Check out this video made by our friends at DT Trading. They are our go-to guys for open outcry execution in CME/CBOT products and have a great feel for the markets. They will soon be providing an intraday commentary service to subscribers. I'll keep you posted!
http://clicks.aweber.com/y/ct/?l=ON6zJ&m=1b5_ZWxbycFgzm&b=Umh9b7SfrJtXADRuyoLTKQ
Perhaps the intermediate-term lows aren't in quite yet, but we think that they are close. Our downside target in the S&P was 1007 but the bounce occurred from about 1012...not too far off. It is possible that we will retest the lows and maybe even a bit lower but we doubt that a complete meltdown will occur. It seems as though a bulk of the selling has already come into play. Look for support in the Russell near 568 and resistance at 595. Similarly, the NASDAQ could see 1640 but we have to lean higher from such levels.
If you are following the NASDAQ trades below, you should be out...if not look for a place to get out Monday morning. If you sold the futures and bought the call, leave the long call and hope for a rebound. If you have the option spread, you should be able to get out with a respectable, but not life-changing, profit $500 to $700 depending on your fills.
* 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 -
September 10 - Our clients were recommended to sell calls into the rally, most sold the 1095 or 1090 strikes in the October S&P options for $6.50 to $6.00 respectively.
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 -
September 10 - Sell 1 mini NASDAQ at 1683ish
- September 30 - This trade is vulnerable, it may be a good idea to place a stop above noted resistance areas but we prefer the idea of buying an October 1720 call as insurance. It will run you about $550.
- October 1 - You should be out of this trade with a decent profit (at any point today you could have offset the futures with a profit ranging from $1000 to $500 before transaction costs and considering the protective call). If you bought the call for protection...keep it. If the market rebounds you can sell it at a better price.
September 23 - If you are looking for something a little more aggressive, you might want to do a bear put spread with a naked leg using the November NASDAQ e-mini options. At the time of this writing, it was possible to buy the 1720 put, sell the 1620 put and sell the 1800 call for even money. In other words, this is a free trade in terms of cash outflow (not considering commissions). However, there is margin of about $3,000 and unlimited risk above 1800. The max profit is $2,000 before considering transaction costs but the best part about it is that your risk at expiration doesn't come in until 1800 so there is plenty of room for error.
- October 2nd - Our clients were recommended to exit this trade this morning. you should be able to get out with a respectable, but not life-changing, profit $500 to $700 depending on your fills.
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.
