August 20th, 2008
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A sharp reversal in crude oil on a large build in inventories provided support to struggling stocks.
Equities were thinly traded which seems to be the theme across all of the financial markets. Stocks traded sharply lower in early trade, but forged an impressive comeback following the announcement of the crude oil inventories.
According to the government, there was a massive increase in the nation's crude oil supplies amid slowing demand. The build was just under 10 million barrels and prompted sellers into the market. The result was a reversal in the September futures contract from above $117 per barrel to under $112. The dramatic move deterred equity selling but failed to lure buyers to Wall Street. Despite banter heard on business television, not everyone has given up on crude oil. "Consumers can take some solace in the sell-off, but there are more supportive factors down the road here," noted John Kilduff, senior vice president of risk management at MF Global in NY.
Fannie and Freddy continue to steal the spotlight and guide equity trade. Shares of each of them are trading near their lowest levels in more than 18 years. Investors in the two firms are concerned that a Fed bailout would wipe out shareholder equity. A weekend report in Barron's suggesting that the Fed officials may have no choice but to "nationalize" Fannie and Freddie has taken its toll on share prices.
The sidelines seems to be a great place to be. I would like to see additional weakness in the market and perhaps an uptick in volatility in order to give put sellers an opportunity to enter the market. Stay tuned...
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 Futures and Options Recommendations...
**There is unlimited risk in naked option selling and futures trading
Position Trade -
August 8 - I am inclined to sell the September 1390 S&P calls for $4 or $1,000 before commissions and fees, if you are trading mini's this would be $200. Before considering transaction costs this trade makes money with the market below 1394 at expiration but faces unlimited risk above 1394. The maximum profit of $1,000 minus commissions and fees occurs if the market is below 1394 at expiration. However, should this order get filled I will likely recommend buying this option back before expiration.
August 11 - This order would have been filled, we will likely recommend to buy this option back should we see a pullback to approximately 1264.
August 12 - Place an order to buy these back at $1 or better.
August 18 - You should have been filled on this order, assuming that you followed the recommendation and were able to get filled at these prices you would have netted a profit of $3 in premium before commissions and fees. This is equivalent to $750 in the full sized contract and $150 in the mini version.
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 Futures and Options Recommendations...
**There is unlimited risk in naked option selling and futures trading
Position Trade -
August 8 - I also like selling the September Dow 12,400 calls for 50 points or $500 ($250 on a mini). Without regard to transaction costs this trade is profitable anywhere below 12,450 but faces unlimited risk above this level. The maximum profit of $500 minus commissions and fees occurs if the market is trading below 12,400 at expiration. However, should this order get filled I will likely recommend buying this option back before expiration.
August 11 - This order would have been filled, we will likely look to recommend buying this option back if the Dow falls to 11,422.
August 12 - Place an order to buy this option back for 15 or better.
August 19 - Had you followed this recommendation exactly, you would have been profitable by 35 points before commissions and fees. That is equivalent to $350 in the full sized contract and $175 in a mini.
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 Recommendation
**There is unlimited risk in naked option selling and futures trading
Position Trade -
August 1 - If you took our advice, you would be long the September e-mini NASDAQ 1670 puts for about 20 points or $400.
August 12 - Not off to a great start, but things may begin to look better from here.
Carley Garner
Senior Analyst/Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
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.
