July 15th
**See my monthly column, Futures for You, in Stocks and Commodities Magazine
Another 300 point range in the Dow comes as no surprise in light of Bernanke's testimony, inflation data and a panicking market. Crude oil futures dropped sharply but equity traders weren't quick to celebrate. Likely due to the reasoning behind the energy complex plunge...Bernanke's claims that the economy faces "significant challenges". Bernanke also mentioned that the economy will grow "appreciably below its trend rate" mostly due to a slumping housing market, high energy prices and tight credit conditions.
While crude oil is relatively inelastic, it is obvious that people are slowly but surely becoming more conscience of their consumption behavior. Just as crude rallied on speculation of higher demand, prices may relax on speculation of lower demand.
On an even worse note, Wholesale inflation rose at that fastest pace in 27 years. The Labor Department reported that higher food and energy prices resulted in an inflation rate of 1.8% on the wholesale level in the month of June.
Hopefully you weren't trading crude oil today, and if you were I hope that you were short futures (from a decent price) or long volatility (options). Crude prices were said to have dropped more today than they have in 17 years. At one point, crude traded $10 lower than the day's high. It is too early to ring the bell on the top of crude oil, but today's action supports the theory that traders are at least beginning to second guess current market values. Keep in mind that we witnessed a $10 plus plunge in crude just last week only to see the market rally back to the highs. The one thing that I am certain of regarding crude is that I don't want to trade it.
Is all of the bad news out? Or is there more of this to come? Selling stock index puts seems to be a good idea here but this view is getting more and more difficult to maintain. Perhaps the sidelines are best for those that don't have the stamina to outlast this market. Remember, good traders don't out-trade the market they out-last it. With that said, foolish traders outstay their welcome...the line is fuzzy and unfortunately it is sometimes difficult to draw until after the fact. This is where experience, instinct and luck will come into play. With that said, my fingers are crossed.
Please note: A mini-sized Dow chart is used because it is better for charting purposes, but trade recommendations are based the full sized Dow unless otherwise noted.
Dow Recommendations...
**There is unlimited risk in naked option selling and futures trading
Position Trade -
· June 18th - I recommended selling the Dow (big or mini) 11,000 puts for 50 ob
- Place an order to buy this option back for 10 ticks or better
- July 14th - Clients were instructed to roll out the position by buying back the July 11,000 near 100 points and selling the August 10,500 put for a credit of about 130. If you haven't done this, it is likely a good idea to do so. Contact me if you have questions.
· June 27th - Buy 1 September 109 put and sell 2 103 puts, this can be done near even money. The trade makes something with the market anywhere between 10,900 and 9,700 at expiration with the max benefit being at 10,300 ($3000 in the mini and twice that much for the big). The risk is unlimited below 9,700!
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 Recommendation
**There is unlimited risk in naked option selling and futures trading
Position Trade -
June 30th - If you followed our recommendation you would be long a NASDAQ from 1850.
· July 8th - I see the potential for a rally to 1867; place a limit order to take profits at this level
- This is not for the faint of heart, if you are uncomfortable...get out.
- This trade hasn't worked out from the start; please note that the limit order to exit has been moved out considerably. I would be happy to see a "scratch" on this one.
Carley Garner
info@carleygarner.com
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. Alaron Trading Corp. its officers, directors, employees and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. 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.
