XL-entLady's Account

[XL-entLady]

Option trading has those big swings, but the potential return is phenomenol. It is always an adrenalin rush when the option go into the money$$$. If we get a run up in the S&P, I am going to buy some call options on SDS for the next market drop.

Gumby, I've never done a call option, although I have the ability to do so in my account. If you do the SDS option, will you walk us through it so I can get a picture in my mind about how it works?

Lady

[Gumby]

Gumby, I've never done a call option, although I have the ability to do so in my account. If you do the SDS option, will you walk us through it so I can get a picture in my mind about how it works?

Lady

Sure, it's really pretty easy.
When I think the S&P stands a good chance to drop within a month, I start looking at the calls on SDS pretty hard. Since SDS is 2 times the inverse of the S&P index, a call option on SDS actually acts like a PUT option for a regular stock. When the S&P drops, the call options on SDS increase in value.
To see how these are priced, you can click the C fund chart on the Tsptalk site (bottom of page) and it will take you to a Yahoo chart for the S&P. Enter SDS for the stock name and it will make a chart of SDS. Then click on the options tab over to the left. The current month option will be displayed. I generally look at the options that are "out of the money" or above the strike price that SDS is currently selling for.

For instance, a call for March strike price 95 SBJCQ.X is trading for $6.90.
So each one of these cost $6.90 * 100 + commission. So for about $700 you can control 100 shares of SDS until March 20th. This gives you 100 to 1 leverage. The upside is potentially unlimited, the most you can lose is your entire investment of $700. 100 to 1000 percent return is not unheard of. Of course, a 100% loss may be a reality if the market does not drop and the value of SDS stays below the strike price. The options are risky and are not for the faint of heart.

Of course, you will need an options account set up with your brokerage.. I use Scottrade and the commission is $7.00 plus $1.25 per contract.

Hope that helps.

[XL-entLady]

Hope that helps.

It really does. Thanks!

Lady

[XL-entLady]

In addition to my core positions, I have two open positions, SDS and TZA.

Someone told me once that you're not really a parent until you have two children. Because when you only have one child you can keep an eye on him all the time, but when you get two then you tend to lose track and that's when they choose to run amok on you.

Well it applies to ETFs too, I think. I took my eye off SDS for just an hour and I missed a good profitable exit. I think that one thing I've learned with my ETF tuition money this week is that I have my core positions and ONE other one.

Lady

[justbizness45]

Lady, you were talking about fast/slow stochastics the other day. If I understand what you wrote and what I read elsewhere, when a ETF breaks above 20 (out of oversold area) it is a buy indicator and when it breaks below 80 sell. Look at IBB, when it breaks back up above 20 and comes off it's lower bollinger band it may be a buy opportunity? Do I have it correct?

[XL-entLady]

Lady, you were talking about fast/slow stochastics the other day. If I understand what you wrote and what I read elsewhere, when a ETF breaks above 20 (out of oversold area) it is a buy indicator and when it breaks below 80 sell. Look at IBB, when it breaks back up above 20 and comes off it's lower bollinger band it may be a buy opportunity? Do I have it correct?

From a purely technical aspect that's exactly correct. I looked at IBB and it's far enough down out of the BB that it should snap back. It has either got to do that or stay down long enough that the situation corrects itself over time.

I use StochRSI which shows IBB down below 20 since 2/17 with only one minor attempt to rise up so far. The OBV (on balance volume) has fallen off a cliff and TRIX and the MACD histogram are not showing any signs of life yet. ADX has just turned up but is still down at 15.

If Stochastics can rise above 20 and ADX continues to rise and gets over 20 to show the start of a new trend, then it might be worth it. But I know nothing about the fundamentals of this market right now, so there might be a reason that OBV shows that everyone fled this market so fast that nobody even stayed to shut the door.

Whatever you decide, best of luck with it!

Lady

[justbizness45]

From a purely technical aspect that's exactly correct. I looked at IBB and it's far enough down out of the BB that it should snap back. It has either got to do that or stay down long enough that the situation corrects itself over time.

I use StochRSI which shows IBB down below 20 since 2/17 with only one minor attempt to rise up so far. The OBV (on balance volume) has fallen off a cliff and TRIX and the MACD histogram are not showing any signs of life yet. ADX has just turned up but is still down at 15.

If Stochastics can rise above 20 and ADX continues to rise and gets over 20 to show the start of a new trend, then it might be worth it. But I know nothing about the fundamentals of this market right now, so there might be a reason that OBV shows that everyone fled this market so fast that nobody even stayed to shut the door.

Whatever you decide, best of luck with it!

Lady

Thanks Lady, now I will go look into all those other abbreviations you just listed.

[alevin]

In addition to my core positions, I have two open positions, SDS and TZA.

Someone told me once that you're not really a parent until you have two children. Because when you only have one child you can keep an eye on him all the time, but when you get two then you tend to lose track and that's when they choose to run amok on you.

Well it applies to ETFs too, I think. I took my eye off SDS for just an hour and I missed a good profitable exit. I think that one thing I've learned with my ETF tuition money this week is that I have my core positions and ONE other one.

Lady

I think I already agree with you! I tried on 3 paper positions on Wed, and it was just about too hot to handle, especially with 2 of them "hedging: each other (problem there was SCO being a 2x short which I didn't realize til I'd put position on-thought it was a straight short til it was too late to do anything but panic. That being lesson #2 for me-make sure I know what I'm signing up for.

#3-2x short is not a good hedge for a 1x long.

#4-What Tom said-about 5 1day in-out trades per month. I already used up 2 in my paper trading. something I'll need to be really careful about with real account. Paper trading is fun and hectic, I don't want to be a day trader, I really truly want to be a swing trader, but its so easy to hit that button-impulse control! Now if I can just get the hang of it well enough fast enough not to fritter away all the real money in account management and trading fees.

[XL-entLady]

...#4-What Tom said-about 5 1day in-out trades per month. I already used up 2 in my paper trading. something I'll need to be really careful about with real account..... I don't want to be a day trader, I really truly want to be a swing trader, but its so easy to hit that button-impulse control! Now if I can just get the hang of it well enough fast enough not to fritter away all the real money in account management and trading fees.

Some very good lessons, Allie!

One clarification, though. If my notes are right, Tom's message about day-trading was "...The new rules apply to traders categorized as Pattern Day Traders (PDTs) who are defined as traders who make 4 or more day trades within a 5 day period..."

I totally agree with you about not wanting to be a day trader! I'm still learning how to deal with stops, entry and exit points as a swing trader. And I'd better learn how to walk before I try to run the day-trade marathon!

I've been a little quiet on the MB because I've been trying to put into practice one of my major new EFT rules. I've decided that I'm going to learn the technical aspects of just a couple of ETF's and I'm going to learn them inside and out, candlestick charts, P&F charts, Fib retracement levels, where they are in their day cycles, etc. etc. It's taken a LOT of time but I recovered 3% of my 8% account loss this morning, so it's paying off.

I chose TZA and FAZ. I want to learn the in's and out's of TZA because I think it will help me to know when to move in and out of funds for my TSP accounts. And I chose FAZ because of it's fundamentals.

After hours of study over the weekend, I cancelled a stop I had on them and let them run at the open, which they both did. Then I put a 2% trailing stop on half my position. My trailing stop on FAZ triggered at $70.95. I then put a buy order in for FAZ at 63.50, because that was an important support level. But with the run-up this morning, I have stair stepped my buy order in according to support levels that I wrote out over the weekend. My current buy-in limit order will trigger at $70.23.

My 2% trailing stop on TZA hasn't triggered yet. When it does, I will place a buy limit order based on where it's current price is in my stair-steps of important support/resistance levels.

My core positions are GTU, GDX and SLV. They are all in negative figures today and if I had done my intense study a few days earlier, I'd have probably lightened my positions on Feb. 23. But I didn't, and I have decided to let them run without stops for at least today, because I totally believe in these ETF's for the intermediate term.

So that's my report for the morning.

Lady

[etftalk]

One clarification, though. If my notes are right, Tom's message about day-trading was "...The new rules apply to traders categorized as Pattern Day Traders (PDTs) who are defined as traders who make 4 or more day trades within a 5 day period..."

Yes, I had to update it after confirming I was wrong about the 5 in a month deal.