Quick update here as I have to catch a plane in just a bit.  I’ve entered into long CALL positions on the SKF and long PUT positions on the SPY in the papermoney account.  My personal account is following the SPY position, not the SKF position.  I am leaving a lot of powder dry in my personal account to trade /ES and I don’t want to tie up capital in the SKF trade.

SKF

The financial system is still horribly broken.  I expect a near term correction and anticipate that it will be led by the financial sector.  When that happens, SKF should shoot up.  My entry on this was a bit early so we will need to see additional declines in financials to achieve healthy gains.  I still remain confident in this play.

SPY

We should retrace towards the 770 level on the SPX(1344.90 +19.36).  800 remains a reasonable level of support, however I expect a pullback towards 770 before a substintial push higher.  I have purchased the June contract to buy enough time to allow this to develop.

Recap of my /ES Trades Today

Today was a pretty darn profitable day for me.  I had a bit of a pre-mature exit on my SKF puts, however they were closed for a nice fat profit.  I can’t complain too much about that.

Recap of the overnight – Stop bot trade

I have no idea if stop bots actually exist, however the evidence appears pretty overwhelming that they do in thin markets.  On Tuesday, Tim Knight posted about an overnight position he had that appeared to be gunned down by a market maker.

Last night, the same thing appeared to happen to my short.  I had my target exit order set to kick in at 708 (perfect in hindsight), and a stop at 715.  The futures ran right up to my stop, kicked me out, then dropped down hard again.

Color me frustrated with that.  Oh well, nothing I can do about it.

Missed that one

See those three lines pointed up in the image above?  Yeah, I should have gone long, long and long.  I was busy at the office and didn’t have a chance to eyeball the market.  Once I had a moment to see what was happening, I jumped in long.

This is the setup for tonights overnight short trade

Flip Flop, lets get short

Very busy day today at the office.  I had an offsite meeting so I dropped in a trailing stop to cover my downside risk on the long position.  I expected pretty strong resistance around 744-749.  Sure enough, the market stopped, I was stopped out and that was that.

I checked on my iPhone when I had a moment, saw the price action and quickly went short /ES with a stop above the 750 area.

This trade should ride down to the 23.6% retracement right around 730.  Again, I’ll be putting down a trailing stop right around 730.  If we can bust through, I’ll take the extra profits.  If not, I’m willing to give up a point or two for the opportunity.

I’ve closed down the papermoney SKF(46.76 -2.36) trade this morning.  My personal opinion is that we are getting close to a near term top in the SPX(1344.90 +19.36) and the risk reward of holding this trade is beginning to work against me.

Today we have the Mark to Market hearings, and of course a range of other possibly market moving news.  Should the XLF drop again (highly probable) I’m concerned about the decay in the values of the greeks for the SKF puts offsetting the potential drop after SKF moves back up.

With implied volatility dropping off so quickly, I’d rather lock in an additional $5,900 in profits for the overall trade, rather than watch it disappear in the next few days/weeks.

So… position closed.  My personal battery of SKF puts have been sold off as well.  I may have been able to bleed more profits out of this position – but now the cash is in my pocket.

Summary

Total investment: $ 13,536.7

Margin Required: $ 0 – Cash Purchase of Options

Total Profit: $ 8,919.5

Return on Investment: 65.8%

Here is what I'm seeing for this /ES trade

This is going to be a quicky, I have lots to get done tonight – including the 10th week of my Marketing class.

Anyhow, I’ve just gone short the /ES.  I think we are ready for some movement down, and with the horrible losses posted by FRE this evening, I think we should see some pressure and consolidation.  My targets are highlighted on the chart.  Take a look.

I’ll update more later this evening.

Update:

Well, I think the chart speaks for itself.  We had a very nicely defined down channel for a few days, that was broken out of due to the good news from Citi.  (Exactly how an insolvent bank that is being propped up a by the government can report good news is beyond me).

That channel is likely something we will revisit soon, however I’m becoming a little more convinced that the 715 level on the March Contract for the /ES may be a turning point.  I happen to be trading the June contract which is trading at a discount to the March by roughly $3.5 points.  I trade with TOS, they rolled contracts today, I wasn’t paying attention and I don’t feel like rolling back into the March contracts.

I’m going to keep my stops loose on this one.  I’m pretty well hedge with my SKF puts right now.  If the /ES rockets up and blows my stop out, then SKF should drop nicely, and I’ll be getting out taking down my profits.  SKF is getting messed with my the greeks, today was a bad day for OTM April Puts.

Stop Update – 2:26am

Why am I still awake?

Stops have been tightened up – quite a bit.  Remember, these are the June contracts so they are triggered off of that price.  About $2.50 lower than the March.  Conditional entry (714.75) stop @ 715, trailing stop +5 entered when /ESM9 trades at or below 708.  I’m hoping the 5 point trailer allows for some wiggle.  5 points is a pretty big move.

Okay – bed – now.

Daily action on the ES Today

Leaving /ES points on the table, and then throwing them away

Well, well, well.  It was nice to get in and out of an overnight profit, but my goodness did I give away the farm in potential gains.  Take a look at the image on the right, what a waste of possible profits…

I got a little frustrated in the morning after watching the run up overnight and into the open.  I didn’t participate in the big move and then tried to short into it.  Well, that trade was stopped out, and then I entered into two quick turn around winners.

Overall, I think I tried to chase a missed opportunity.  Not the best performance.  I was very busy today at the office so I didn’t have a chance to do proper analysis, and ended up getting a little to emotional with these trades.  A much better idea would have been to leave my initial stop in, then let this thing run.

The profits that I flushed down the toilet today were just tragic.  Tragic.

I’m still pretty new to the /ES, so learning how to trade it is taking a bit of time.  The liquidity is just amazing, and the market is moving so fast right now that it is a great time to learn in real time. Remember, I have a full time job, so I can’t stare at a trading screen all day.  I get a few looks at the market here and there, but that is about it.

What is happening in SKF land?

Take a quick look at the past 10 days of XLF action

This afternoon I took 10 contracts of SKF(46.76 -2.36) off the table, capturing back the initial investment, locking in a modest profit and having a few contracts ready to ride out the fall.

Lets take a moment to look at two charts to see why I did this.  The first one is off to the left here, it is a picture of the recent price action in the XLF.  You can see pretty clearly that the XLF has moved down steadily for the past week or so.  Then today, this bad boy just went up like a rocket-ship.

Why is all of this important?  Well, the XLF is the basis for SKF.  SKF moves 2x the inverse of XLF, on a percentage basis.  The percentage part is what is key here.  As SKF (or any 2x etf) gets to a nominally high level, they will naturally collapse.  10% of 200 is 20, whereas 10% of 20 is only 2.

With today’s jump up in XLF, the SKF dropped a full 62 points!  Yup, 62 points.  That means that the value of the Puts we purchased on Monday jumped through the roof.  SKF is still high enough (at 186) to jump up quickly if the XLF were to fall off again, which may be in the cards tomorrow.

Here is a chart of the SKF for the past 10 days

Divert your eyes now off to the right again.  This is the price action of the SKF over the past few days.  Today was a nice collapse, and I think we will see a follow through in the next few days.

I have highlighted my target range for this leg down of SKF, based on compression of the 2x ETF.  XLF has a pretty good chance of moving up to a 61.8% retracement, which would add additional pressure to SKF. Even better, a slight pull back in XLF followed by a sharp rally would really put the pressure on.

I’ll keep a close eye on the price action in both SKF and XLF over the next few days to work a profitable exit on the remaining puts.  I’ll also be closing out my perosnal position on SKF when I close down the papermoney trade.

Well, with Citigroup’s news this morning driving the XLF way up, and the SKF(46.76 -2.36) way down, these April Puts have become quite profitable.  In fact, intraday the Puts had a return of more than 50% in just a few short days.

I firmly believe that SKF(46.76 -2.36) has a long way still do drop; however, there is no reason to kick a gift horse in the mouth.  As a result, I’ve closed 10 of the SKF(46.76 -2.36) puts for $17.30 a piece.  This has locked in a little more than $3,700 in profit and now I have 3 SKF April 140 lottery tickets available to run as I see fit.  I’m expecting SKF to continue to crash out as we move into Wave 4 up in the general markets.

I’ll post some additional analysis on this trade later this evening or tomorrow.  I have class tonight, so it is a busy night for me.

This morning, just after the opening bell I was filled on my initial 8 SKF(46.76 -2.36) PUT contracts.  This trade was already nicely into the money for the morning, so I legged into an additional 5 contracts, and have an order out for another 10 if the market turns mid-day today.

The current position is long 13 SKF April 140 Puts.  As I type this, the position is up $2,295.00 in profits already.  That isn’t too shabby considering that I have about $14,000 invested with these puts.  The April contract has open interest of about 2,050 so owning 13 of these is well within reasonable levels.

Target on this remains an SKF drop to around the 150 or so levels in the very near term.  I’ll continue to evaluate the performance of SKF during the trade to get an profitable exit.

I have a similiar trade on in my personal account.

It’s about that time again. I’ve doubled up the papermoney account over the past three years or so and I’m going to reset it back to $100,000 and do it again.

So, the account has been reset, and I’ve created a brand new fancy table tracking system to get a better read on the trades that go into the account and how they work together.  Take a look at the picture below and you’ll get an idea of how the table works.  I’m grouping complex positions together as I’ve gotten in the habit of legging into positions lately.

To start this whole thing off again, I’ve entered in an order by buy some April 140 SKF Puts.  Take a look at the last 6 months of SKF(46.76 -2.36)

Because of the compounding nature of the 2x ETFs, this bad boy is bound to come crashing down to earth again very, very soon.  A choppy market, or a sharp rally in the financials will bring SKF crashing down from the current price of over 250.  I should get a fill when the market opens up on Monday.  Once that happens, I’ll enter the trade into the paper money page and post a note.