Market Gyrates Around Ahead of the Fed

Several news reports are probably harbingers of things to come, and it has Wall Street a little spooked in the pre-market. UPS guided down, which is an indication of rising fuel costs and slowing business activity. Dow Chemicals will raise prices as much as 25% in July to offset rising fuel costs. Bernanke is already starting the rhetoric to raise rates as soon as August because of.....drum roll please.....rising fuel costs.

And of course, you can't have news without the other half of the issue.....Financial companies are expected to lay off as many as many as 175,000 employees by this time next year. The Financial sector has shed 83,000 jobs in the past year and some analysts think the worst is yet to come.

Sssooooooooo, I'll be looking for puts on the Q's, SPY, MDY (if the spreads are good), and perhaps a few other stocks this morning. In addition, if Energy and Commodity stocks gap up at all at the open, I will lock and walk on the calls from yesterday. I'm not looking to get too excited about piling on to a bunch of trades ahead of the Fed tomorrow, I just want a few puts, and I want to scale out of my calls a bit.

7:35 am MT: I hit my profit target of 115.00 on CLF so I sold the position. I took part of the profits on X. I took part of the profit on HK right out of the gate, and then on the big fade I sold the rest. DNR was very fussy out of the gate, the option chain would not open when I had a profit on the early move up. So I stopped DNR on the fade when the option chain finally opened for a .05 cent loss (basically a scratch trade). I will probably never trade DNR again since the market makers on the options aren't playing fair. I also picked up a set of Q's puts on the pop up after the gap down.

7:45 am MT: I sold the last of the X calls, and I'm all out of the calls from yesterday. I said that I expected the calls to be a quick trade early this week, and they were. Here are the final results on the calls from yesterday: DNR was a scratch that lost .05 cents. HK was a .40 cent profit, or 6% gain. CLF was a 1.90 profit, or 16% gain. X was a 1.78 profit, or 17% gain. I went over 80k in profits on the year this morning (starting with the 50k account in January).

8:00 am MT: I nibbled a small put position on SOHU. I also picked up a tiny put position on IWM. I'm expecting both to bounce this morning, so the small position is really a chaser to hedge against a dogpile. But I think they will bounce, and allow me to get a nice entry for the rest of the position. Remember, with the Fed tomorrow, and a bunch of economic reports as well, and RIMM earnings after the close tomorrow (and ORCL, NKE and MON earnings tomorrow as well), I don't want to get too loaded up on puts heading into a very "newsy" day.

8:15 am MT: I added a little to the IWM puts on this intra-day bounce.

8:50 am MT: I added a little to the SOHU puts on the little intra-day bounce.

9:00 am MT: I know that many of you want to experiment with options strategies that are less time consuming to manage. So I will throw out Iron Condor setups from time to time that I like. Here is as close to a no-brainer as it gets. The SPY July 125/124 (bull put) and 138/139 (bear call) Iron Condor will net about .30 cents credit right now, with only .70 cents of risk. That's a 43% return on risk for only 24 days, and it's only a one point spread. It's a pretty darn good setup as far as Iron Condors go, I will paper trade it and I suggest those of you who are interested in "easy to manage" options strategies also paper trade it.

9:20 am MT: I finished adding to the IWM and SOHU puts. I'm set for the rest of the day and looking for a fade. I have small enough positions that I may carry these through the "newsy" day that I expect tomorrow. I'm not looking at any calls right now, but as always, that could change if we get strong technical signals.

11:00 am MT: The Dow is trying to hold support, and the Dow's technical bounce is setting off short-covering in Financials. Because the Dow and SPX are trying to hold support areas, and because of the newsy day we are headed towards tomorrow, I am holding only 3 small put positions. I want most of my portfolio in cash today. There's not much else to say, or do for that matter. And it will get quieter as we get closer to the Fed tomorrow. So I'm just sitting tight for now.

1:00 pm MT: Not much has changed in the past two hours other than the indexes made a lower low on the 5m charts and might be in a Bear Flag right now on those same 5m charts. That could lead to a fade into the end of the day. In the Big Picture, the market is just spinning it's wheels in the mud, but the mud is still sliding the car downhill despite the fact that the Dow and the SPX are at support on the Daily Chart. If we roll down near the days lows, I will take half my profits on the Q's and IWM puts, and about 1/3 my profits on the SOHU puts.

1:06 pm MT: The Bear Flag on the 5m charts did play out to the downside, so we'll see if the market finishes the day down near the lows or not. It's basically a toss of the coin to me on the last hour. But like I said, in the Big Picture the market is still pretty squishy despite being at support.

1:55 pm MT: I sold a small portion of the Q's, IWM, and SOHU puts before the close. So far I am making about 5% on the Q's, 5% on IWM, and 9% on SOHU. I kept a majority of the positions and I will look for a bump down in the morning to sell most of the rest ahead of the Fed. I think that after the first hour or so tomorrow morning that the market will probably get really quiet and flat. We'll see if the economic reports (especially the Durable Orders) gives me a gap down in the morning that I can immediately sell my puts into and lock ahead of the Fed.

7:15 pm MT: Market Wrap: The Nasdaq broke support at 2,385 - 2,390 and immediately dropped to the next support level at 2,350 - 2,352. With all three major indices testing supports today, it is likely that they hold those levels at least until the Fed announcement tomorrow in the middle of the day. It's possible that a poor Durable Orders report drops the market back down to those areas tomorrow morning before the Fed, but I'm speculating the supports hold until the announcement. If the market does drop down right out of the gate, or in the first hour, I will exit the rest of my three put positions and then probably just sit tight until the announcement.

One quick note: I'm taking Thursday off, but I will probably open a post on Thursday anyway so you can comment to each other. I may have enough time to throw a couple of market comments on the post on Thursday, but I won't be around for most of the day, and I won't be doing the VC on Thursday.