SPX Through 12-11-09

Our breadth oscillators have given six separate sell signals over the last month, as $SPX has been unable to break out on the upside. That is certainly a negative sign, and those sell signals remain in place today.

Equity-only put-call ratios have been unreliable ever since heavy hedging activity began last summer. That activity seems to be abating now, so we are tentatively looking to use the equity-only ratios as trustworthy market indicators again. They, too (like breadth) have generated sell signals this week.

VIX Through 12-11-09

In summary, both bulls and bears are frustrated — and will likely remain so until a breakout occurs.

SPX Through 12-4-09

The $SPX chart remains mostly bullish. The rising trend line connecting the March and October lows is at about 1070 and rising. Coupled with the just mentioned support at 1080, this means that the trend is still bullish. However, a close below 1070 would be problematic for the bulls.

Equity-only put-call ratios have begun to clearly decline and thus generate buy signals. In normal times, we would be encouraged by that fact, but with the distortions caused by the heavy hedging activity since July/August, we still view the signals from these put-call ratios tentatively. These are not our primary indicators at this time.

Market breadth, on the other hand, has been a much more accurate signal during the rally since March. Breadth has given a sell signal each time that $SPX has approached the top of the trading range and then fallen back. Today was no exception, as yet another sell signal has been issued after the $SPX failure to break out on the upside.

VIX Through 12-4-09

In summary, $SPX has been unable to break out of the trading range. Perhaps Friday’s Unemployment Report will provide a catalyst for the breakout. Traders should wait for the breakout before taking speculative positions.

[An unexpectedly good unemployment report did send the S&P 500 up 1.5% at 10 AM but it quickly fell back and closed up 0.5% at 1106.] ]]> http://tradenakedoptions.com/2009/12/still-in-a-tight-range/feed/ 0 http://tradenakedoptions.com/2009/11/dubai-drops-dow/ http://tradenakedoptions.com/2009/11/dubai-drops-dow/#comments Sat, 28 Nov 2009 01:28:16 +0000 http://tradenakedoptions.com/?p=2164 Mohamed El-Erian CEO of PIMCO and co-CIO with Bill Gross talks about the Dubai Debt Crisis. The markets have gone up indiscriminately on liquidity alone. The money from the Fed hasn’t made it to the real economy so all asset classes went up. Dubai World needs six months to resume debt payments is an event that triggers a re-pricing of assets.

Asian markets were down 5% on the news but the S&P 500 futures were down 24 on Globex over Thanksginving, but today the damage was 19 points. So it looks like the market considers it contained.

Again, when everyone is talking about it, it is near the top. Dan Sheridan has two trade ideas, one bullish and one bearish for GLD, the gold SPDR that holds bullion.

Tomorrow is the ex-dividend day, so I was looking at the puts to see if the stock would be called away. Right now, the puts are trading for 0.55 bid, 0.6 ask. Since the dividend is 0.39 the stock won’t be called.

M & T Bank (MTB) is a horse of a different feather. It’s ex date is the Friday after Thanksgiving, so tomorrow, Wednesday, will be decision day for call owners. Right now the 60 call is trading 4.9 / 6.2 with the stock at 65.97 and the December 60 put at 0.6 / 0.7. The quarterly dividend is 0.70 per share. Looks like it will be called. I can try to unwind the position so that I don’t have to carry it tomorrow. There is no more juice to squeeze out of this orange.

Here Goldman Sachs settled down around 11 AM. Then between 2 and 3 PM it wandered off plummeting to the strike at the close.

BIDU just took off, but we didn’t think it would pin, did we?

Google is often a good pin candidate. Look at what it did today:

Apple likes to wander, but look how well behaved it was after 1 PM.

CME was quiet but not pinned. Look at the chart.

SPX Through 11-20-09

From an intermediate-term point of view, the $SPX chart remains bullish because the uptrend line connecting the major lows is intact and still rising. Furthermore, the series of higher lows is still intact.

Market breadth has given another sell signal — the third one since November 10th. These repeated sell signals are a sign of the deterioration in the overall market. These sorts of things can persist as tops are “rounding” affairs.

The equity-only put-call ratios have still not completely shaken off the effects of the massive put hedging purchases that have taken place since July, 2009. These ratios have remained in very tight ranges over the past couple of months.

VIX Through 11-20-09

In summary, the $SPX chart is intermediate-term bullish as are the volatility indicators, but a close below 1080 would be short-term negative — likely signaling the next correction, as confirmed by the sell signals in the breadth oscillators.

RIMM and CME are far enough away from their strikes that the intrinsic value in the options make their probability low.  Have to look tomorrow where the straddle is if they get near the strike.  The BIDU and MA straddles look under priced.

Now I know why I didn’t write about this before. This was a dumb trade. There is no time value in the call, it is exactly 1.32 below the stock price.

The reason is that the ex-dividend date was two days later on the 29th. The stock would drop by nearly the dividend paid, fifty seven and a half cents a share, and the call will stay where it is. On that day, CPNO closed at 17.93 from 18.25 the day before. Dropping just 0.32.

A few days later I compounded my error. CPNO was trading at 16.90 and the call was at 0.38. If I closed out the trade, I would have a 1.98 loss on the stock, a 0.94 gain on the call and 0.575 in dividends for a loss of 0.465 plus commissions. CPNO was out of the break even zone of the buy-write.

What I did was to buy the 17.5 call and sell the 15 call for a credit of 1.55. That way I felt protected. When I closed out the trade a few days later, my loss was 0.442 after commissions. Slightly better than closing it out earlier, but not worth the extra few days.