So far, so good!  Today the ‘basket’ of positions I opened on the 23rd gained another $2,500 of so of value.  As the VIX(17.10 -0.88) continues to plummet and the indexes move further into positive territory move money moves into the account.

Most of the positions are now worthless, so I’m planning to spend a little cash on commissions and then close them out. There are only about two weeks left until expiration and given this volatile market, I’m willing to spend some money to make some secured gains!

Anyhow, I’ll post updates as the positions are closed.  Trade smart!

Well, well, well… That was a pleasant surprise closing in the markets today.

Let me update you on the paper money portfolio.

This morning, right after the opening when things were in the toilet I was filled on all five of my positions. Of course, having a great broker I received price improvement all every last one of these.

Here they are in order of execution:

• Sold 200 Vertical SPY(134.54 +1.86) Feb 2008 122/121 Put @ $0.28
  • Credit $5,600
  • Commissions $(609.95)
  • Margin Hold $20,000
• Sold 200 Vertical QQQQ(0.00 +0.00) Feb 08 40/39 Put @ $0.18
  • Credit $3,600
  • Commissions $(609.95)
  • Margin Hold $20,000
• Sold 200 Vertical DIA(128.37 +1.53) Feb 08 111/110 Put @ $0.22
  • Credit $4,400
  • Commissions $(609.95)
  • Margin Hold $20,000
• Sold 200 Vertical IWM(82.95 +1.77) Feb 08 61/60 Put @ $0.21
  • Credit $4,200
  • Commissions $(609.95)
  • Margin Hold $20,000
• Sold 100 Vertical VIX(17.10 -0.88) Feb4 08 32.5/35 Call @ $0.67
  • Credit $6,700
  • Commissions $(309.95)
  • Margin Hold $25,000

The long and short of it is that I think that fear was at a high this morning, and that the market has hit a short term bottom.

At the close of the market today, I had a paper money unrealized gain of roughly $13,000 on these positions. I plan to keep them around for a while as we hopefully continue up a bit more and then I may exit early to lock in profits in this volatile market.

Please take caution in this market. If you are not comfortable with a trade – do not put it on. It is critical that you understand the risk that you are signing up for, especially in highly volatile markets like this.

Okay… So I think this is the bottom.

Could I be wrong?  Yup… If I am I may blow through about 100K of the paper money account, however I don’t think that is going to happen.  I’m working on a series of positions right now.  They are along a ton of different ‘minis’.

When I get fills on these tomorrow I’ll update the portfolio and describe my thoughts on each of these.  Overall, I think we have hit a temporary bottom and I’m willing to play it.  So here are the tickers:  IWM, DIA, SPY, QQQQ and the VIX.

My orders are as follows:

• Sell 100 VIX Feb 32.5/35 Call Verticals @ $0.45
• Sell 200 DIA Feb 110/100 Put Verticals @ $0.13
• Sell 200 QQQQ Feb 40/39 Put Verticals @ $0.13
• Sell 200 SPY Feb 122/121 Put Verticals @ $0.18
• Sell 200 IWM Feb 61/60 Put Verticals @ $0.14

I’ll post the updates as soon as I get them.  Good luck, hopefully I’m on the right side of this.  If not, it may be quite costly.

Trade smart!

Somebody grab the band-aids, we need to stop the bleeding!

Wow, today just sucked.  I had been checking in now and again throughout the day to see how things were going and things looked great.  The bulls had started to rally again and it looked like we were ready for a nice bounce back up… Then the CEO of AT&T blabbed…

Ouch, it was rough.  The Dow was down 238, the RUT 19, NASDAQ 59 and the S&P 500 down 26!  Holy sea of red. Well, now it is time to take a good solid look at what is happening.  This sort of downward movement is unnerving.  The markets have pushed into truly bearish territory.  I’m still a long term bull on this market, I think that 2008 will end higher than it started, however given the current crushing drop through all technical supports it is time to start playing it safe.

The markets have been closed for about 2 hours and the current after market data is showing the S&OP futures up.  Ideally, tomorrow has a bit of a relief rally following today’s dramatic sell off.

Okay… so lets talk about the RUT(831.11 +0.00).

The RUT is a small cap index.  Small caps get hurt when the economy gets hurt. The rumor mill around Countrywide and the comments today by AT&T sent stocks tumbling, and small caps tumble really, really fast.  It must have to do with some arcane law of gravity or something…  Okay, it likely has to do with fundamentals and the stuff that drives stock values.

So, now that the RUT has busted through support at 730 and then followed that by a critical breakdown past 705, what do we do? Today – nothing. I’m going to sit tight for a few more sessions and watch.  670 is still a long way away.  I’m not saying that it isn’t possible.  In fact, according to my trusty tools from thinkorswim, there is approximately a 15.96% change that the RUT will expire at or below my break-even price.

So, this is quite a jump up from the 6ish percentage chance we’ve been looking at.  Personally, I’d agree that the chances have doubled.  We have just come crashing down, a long way down.  Let’s not forget to look at how far it can go in one drop!

The plan

First of all, I’m not going to break the rules.  If the RUT comes crashing down through 680, I’ll start to unroll my positions – quickly.

Ideally, the RUT moves up nicely and we can let time decay work in our favor.  If the index is able to get a strong move to the upside, and I can unravel the position for about $0.15 or so I’m going to.  In fact, I’m going to go ahead and put an order out today to buy back the position for $0.15.  I don’t expect that I will get filled anytime soon, however it will be there if the swing comes my way.

If the RUT rockets back upwards 40 points or so (un-likely) I’ll cancel my buy order before it is filled and let time work for me.

Basically, it is a little bit of wait and see.  I think there is still money to be had here, but it is definitely time to pay attention!  Figures… I’m traveling next week.

Good luck!

For those of you tracking the PaperMoney Russell 2000 RUT(831.11 +0.00) position, things are looking pretty darn good!

As they days continue to tick away the trade looks like it is going to hold up nicely. As I type this the RUT is making a run away from the session lows, pushing up above the 726 mark. It really looks to me like the index has hit a temporary bottom.

I pulled up a quick chart on prophet today in my thinkorswim tools, take a look.

You can see that the RUT has dropped below the lower acceleration band, however it has not continued its movement down. The RSI is still hovering around 25 indicating a very oversold situation. I expect that the RUT will rebound up back into the 730+ range today or over the next few days.

Heck, even Tim Knight is going long the RUT! (If you don’t read his blog Slope of Hope with Time Knight, you really should)

Given that we are just about a week and a half from expiration, time is on our side. The value of these options is going to start very rapid time decay and we should end up sitting pretty, walking to the bank. I do have this trade open in my personal account so I’ll be walking to the bank as well!

Anyhow, good luck out there. Things are looking pretty choppy and the VIX(17.10 -0.88) is going to be our friend for a while!

Update

Ouch… That turned around quickly. It looks like the bottom fell out for whatever reason on the RUT took a dive. The whole market actually took a bit of a dive so we’ll have to figure that one out. I’m still feeling pretty good about the whole situation as we still have a 35 point cushion. I will be watching closely this week and will have to determine the course of action as the days move ahead. Another 5% drop in the index seems too dramatic, however if the Bears really get a hold of things, it is possible.

Remember, the markets always drop faster than they rise!

2007 has come to a close. The Santa Claus rally didn’t really do much this year and we ended on a down note.

The RUT closed the year at $766.03 down ($5.73) for the day. All of the other major indexes shared similar performance for the lackluster close of the year.

Overall, 2007 was a pretty good year. We’ve seen volatility, measured by the VIX, come back and hopefully it will stay around for a while! Volatility makes for more time value in options, more time value means more premium which in turn should lead to more PROFITS!! Given all of that, personally, I’m happy that volatility is back.

Of course all of the major trading rules still apply. We still have to do proper analysis of the trades and ensure that he risk is appropriate for the reward. More premium in the option prices means that we should be able to move further way from the current price of the underlying when opening positions, creating more profitable trades. Not only can we move further away, it is very possible to make some great near term trades as well. The rules become very important. Trading by the rules means long term profits!

Going forward…

I’m still bullish on the overall market. I don’t think that we are through the end of the current credit crisis, and I expect that will continue to drag on stocks, especially in Q1 2008. However, I would be surprised if at the end of 2008 I’m not talking about what a great year it has been. The RUT, DJI, SPX, NASDAQ and all other major index’s, in my opinion, will see solid gains during 2008.

I’m not going to make a percentage prediction, however I do think it will be a bumpy ride to get there!

Wednesday January 2nd 2008 marks the first day of the 2008 trading year. It should be a fun day with the fed releasing the minutes from their December meeting. If inflation is a key theme to the minutes, it might mean a rough day in the market. Even with hawkish commentary from the fed, I think we have a few more rate cuts ahead. While I think it would be dangerous to get back to the 1% rates of the last few years, we need to get down a bit from the current rates to help clear up the lending and credit crisis.

Anyhow, I hope your 2007 was as good as ours! Good luck in 2008 and remember – Trade Smart!