October 9th, 2008
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7 days and counting...
Today was the seventh day of carnage and turning the tide doesn't seem to be an easy task. Despite a Treasury market that seemed to sell off on optimism over progress in the credit market, analysts are blaming much of today's weakness on a lack of progress.
Stock investors aren't happy with the actions taken by the Fed and other policy makers, they want results. Unfortunately, it is going to take time for the effects of recent moves to impact the economy and the credit markets.
Most economists agree that we are in a recession, but most also agree that with proactive government policy the possibility of the "Great Depression II" is slim. Nonetheless, investors are scared and until we can get confidence back in the system the financial markets will suffer. The Fed has taken drastic measures to correct the fundamental damage that has occurred to the economy but restoring market psychology will be a daunting task.
"Until we kind of stabilize I think you're going to see these gyrations for quite some time," stated Stephen Carl, principal and head of equity trading at The Williams Capital Group. "We're stuck in a morass and I think it's going to take quite some time to come out of it."
All eyes are on the weekend G7 meeting which is aimed at staving off the global economic crisis. According to sources, the Treasury department is looking to directly inject capital into U.S. banks by the end of October. Despite rate cuts by central banks around the world, investors are hoping that global politicians will be able to effectively cooperate during and after the G7. Even if officials aren't able to pull themselves together for the greater good, they had better portray that image...otherwise more misery could be ahead.
Now is the time to buy lottery tickets! Buy the October S&P 500 1050 calls for $6 in premium or less (you could have gotten filled today for closer to $5). You may also like the November 1180 calls for about the same amount.
We don't have any clients in the trades below, but are showing them for the sake of transparency. If you are involved in any of these markets or trades and would like advice or help, please contact us.
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 Trade Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
September 5 - Try selling the September 1160 put for $4 or better, it will take continued weakness to get filled. (See adjustments below)
September 9 - If you were trading the mini version, you should have been filled on this today. Those trading the full sized contract likely were not filled and should keep the order working in tomorrow's session. We are giving the market plenty of room to move, but this must be handled with care.
September 11 - I recommend placing an order to buy this option back for a $1 in premium, this would be a profit of $150 on each mini and $750 on each full sized before commissions and fees and assuming that you are able to get filled at the prices noted.
- This option traded at $1, but didn't go through it. You likely weren't filled, keep the order working on Monday but don't get greedy. If it costs a little more, take your profit and run.
- Hopefully you exited this trade on Friday, if so you may want to resell this option. If you are still holding on, look to exit on the next significant bounce. Preferably at $1.50 or less. Contact me for guidance.
- Clients were advised to roll this trade into the October options by buying back the Sept. 1160 put and selling the Oct. 1060. At the time this could have been done at a debit of $1.25. It is better to be safe than sorry!
- Place an order to buy back the 1060 put for $3.00, let's get this over with!
September 18 - If you prefer the big board, based on today's settlements it may be possible to buy the November 1160 put and sell 2 of the 1080's for near even money. Assuming an even money fill, this trade makes something from 1160 to 1000. The maximum profit of $20,000 occurs if the market is at 1080 at expiration, the risk is unlimited (equivalent to being long a futures) below 1000.
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 Trade Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
September 5 - Sell the September Dow 10,600 puts for 50 or better. This can be done in the mini or the full sized. Call me for additional guidance (see adjustments below).
- September 15 - This order should have been filled today. Look to buy this back for 10 or better! Don't get greedy, if we get a large bounce take a profit. There may be a chance to resell it.
- September 18 - Clients were advised to roll into the next option month by buying back the 106 puts and selling the 97 puts, at the time this could have been done for a debit of 2 ticks. We wanted out of this market's way!
- You should have an order to buy these back at 20.
September 18 - Take advantage of the volatility through ratio put spreads!! Premiums are "fat", you can buy an October Dow 10,700 put and sell 2 of the 10,200 puts for close to even money. Assuming an even money fill, this trade pays off something above 9,700!! The maximum profit is $5,000 on the full sized contract and $2,500 on a mini and occurs if the market is trading at 10,200 at expiration. 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 Futures and Options Trade Recommendations
**There is unlimited risk in naked option selling and futures trading
Swing Trade -
Flat
Position Trade -
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
1-866-790-TRADE
Local : 702-947-0701
http://www.decarleytrading.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. 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.
