Written by admin

To Bull Or To Bear, That Is The Question!

Quadruple-witching hour happened
Friday. Bullish or bearish market ahead?
Oil prices retracting as supply increases.
Learn from my Quicksilver trade. Get the
latest at TradingTrainer.com.

Hey trading team,

This is A.J. on Sunday, September 18th with your
Trading Trainer web log. We are your home of
market insights for the serious option trader.
This web log will cover the events in the market
from this past Friday as well as prepare you for
watching the market tomorrow.

The quadruple-witching hour – the curious event
that happens once every three months – it happens
on the third Friday of March, June, September and
December – it’s the event where contracts for
stock index futures, stock index options, stock
options and single stock futures all expire –
caused a ton of volume to be traded on this past
Friday. A lot of shares were trading hands. As
well, Friday was the first day that the S&P 500
went to its new algorithm on how it chooses stocks
to be calculated within its index. It is no
longer based solely on market price. Now, it has
more to do with shares a company has available for
trade. In other words, things were topsy tervy on
Friday.

Here’s what I see that is hard for me to figure
out. On the weekly charts for our indexes, for
the Dow and the NASDAQ, we got key reversal down
patterns on heavy volume. That is where the intra
week high was higher than the previous week’s but
the close was lower. That forecasts a trend
change in the bearish direction. On the contrary,
the weekly chart for the S&P 500 gave us an upside
down Lincoln’s hat pattern. That forecasts
bullish times ahead. Although the patterns were
on heavy volume, none of them were distinct enough
to give me any guidance. And, I’m leery about
Friday’s price movement and volume as well. The
only thing I’m currently not leery about is the
price of oil. With demand dropping and supply
increasing price seems to be retreating.

I’m sticking to my guns team. Till I see the
indexes break through those resistance levels, I
am apprehensive about opening long positions right
now.

Okay team; let’s change gears a little bit. I
want to do a post mortem on Quicksilver – ticker
KWK, my worst trade of the year. Let’s look at
Quicksilver using our Bollinger band and butterfly
pattern template. When the Bollinger bands
constrict, we know an impending breakout is near,
we just don’t know it which direction. When the
20, 10 and five day exponential averages start to
collapse on each other – we call that a butterfly
pattern – we know an impending breakout is near,
again, we just don’t know in which direction. We
watched that pattern build with Quicksilver
through July and the beginning of August. We had
our alerts placed such that if price closed below
the lower Bollinger band, we were prepared to buy
a Put. Or, if price closed above the upper
Bollinger band, we were prepared to buy a Call.
We finally got it on Tuesday August 16th. That
was our signal to open a short position. And
since crossing below the Bollinger band was what
signaled us to go short, closing above the
Bollinger band was what would signal us to close
the short position. That happened on Thursday,
August 18th. From the close on Tuesday, August
16th to the close on Thursday, August 18th, we got
95 cents of underlying stock price movement which
translated to our option having a 50% return on
invested capital. This is where I broke my own
rule. The signal came telling me I should exit.
I didn’t. I lost. Team, the most important
signal to exit a trade is the indicator that
brought you in. Above and beyond that you may
employ a stop loss strategy. I broke the major
rule of exits. On top that, I didn’t cut my
losses at my low level. That was rule number two
broken. So, in an option that was a quick win,
50% return on invested capital in 2 days, I
extended the trade to 30 days and wound up loosing
91% of my initial investment. Team, this is
deplorable and a perfect example of what you
should not do.

My EOG resources October 60 calls closed higher at
$11.00 an option. My current return on my
invested capital is 77%. I’ve been in that trade
for 56 days. My Tenaris October 105 Calls closed
higher at $14.70 an option. I’m in the black with
a return on my invested capital of 86% after 21
days in the trade.

Team, typically before the Tuesday where the Fed
announces interest rate changes, the market is
quiet. I expect that tomorrow. This is not a
good time to be opening new positions because
there really is little to guide us. So for me,
the sidelines it is. I’ve got trailing stop loss
orders to setup on my EOG resources and Tenaris
options tomorrow. I’ll be setting them initially
for 15% below the bid. If they appreciate more
tomorrow, all well and good. If they depreciate,
I’ll take my profits and be content with profits
over 50%.

Okay, team. I’m done.

Till tomorrow, happy market watching, trading
and money making. Trading Trainer is here
helping you create your dream lifestyle.

Best regards always,
A.J.

Click on the below play button to hear
the blog as an audio from A.J. himself!


About the Author
A.J. Brown is a full time options trader, author,
speaker and consultant. Watch him review stock
charts on video each day, listen to his audio
newsletter where he leads you by the hand
through the end-to-end process of successful
options traders and get tips and tested strategies
proven to boost your return on your invested
capital by massive amounts in his membership
site at TradingTrainer.com today.

* You may reprint or distribute this article as
long as you leave the content, the links and the
resource box at the end intact.

TradingTrainer.com Web Log

Categories: Blog

Leave a Reply




Video: Covered Call Writing  

Learn How to Write Covered Calls

In this series of 6 videos, I show you how to execute my covered call writing strategy from start to finish. Watch the first video instantly when you click for more information. Click for more »