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(47.10 +0.00) 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.