Earnings this morning have attenuated the negative sentiment from last night considerably (see yesterday's late postings), especially in Financials, Cyclicals, and Energy. Just as I warned of yesterday, C has changed the picture in Financials considerably this morning by reporting less than catastrophic numbers. Most Financial companies were down after hours on the MER, COF, and ZION's earnings misses yesterday. Now the Banks have come way back and look to at least hold the two day bounce and not turn the day into a bloodbath. Brokers and Credit Services may not do quite as well, but the Bears in Financials will be more scared this morning, by quite a ways, than they were last night.
In addition, HON beat expectations and should give Cyclicals a boost. Also, SLB beat expectations and that along with Oil being up slightly will probably give Energy a boost out of the gate. The reports in the Oil Patch will probably slow or even stop the current ST downswing. The slight move up in Oil prices shouldn't be a huge bearish drag on the market early in the day, but if Oil prices keep spiking throughout the day then the market could sell off.
As it is, the Naz is the only index of the three majors to maintain more of a bearish-looking open. The Futures have come way back, though, from last night and earlier this morning. The SPX Futures were down 14.7, and now they have come all the way back to breakeven. This means that Financials (and Cyclicals) are still catching some wind beneath their wings. Perhaps the Dow and the SPX will even wiggle up a little on more fear out of the Shorts. I'm expecting a real back and forth day today with the negative/positive earnings creating a good cop/bad cop environment. In addition, it's options expiration and a Friday.
Only the Naz is set to gap down now, and the Futures have backed way off there as well. The Naz futures were down 36.3, and now they have come all the way back to down only 12.5 with 30 minutes to go until the open. I'm still looking for selling in Tech because of MSFT and GOOG, but this morning's outlook is much better than it was last night.
I was going into the day watching for Tech puts on the Q's, RIMM, and maybe a few other stocks. I also was interested in Steel puts on SCHN, NUE, and AKS, and Chemical puts on MOS, CF, or AGU. I was also interested in SPY puts, and perhaps puts on Brokers LEH, MER, or LM. Now I would be a little more cautious, but Steel, Tech, and Brokers might still be in play.
I was going into the day watching for Bank calls on JPM and PNC. I was also watching the Cyclicals with DHR and UTX. Other stocks that I liked for calls today were ERTS and FLIR.
At this point I see some very mixed signals out there in market land. I am expecting some pretty wild price action banging around today, so be patient as you watch for an opportunity to appear. Take slightly smaller positions and mostly play the intra-day swing on the 30m - 60m charts while keeping an eye on the lower time frames. You probably want to take partial profits on directional trades fairly quickly intra-day, and then just ride with part of the position. I'm going to take care of some personal things for the next few hours because I have the night shift today. But I will be back to put on those Iron Condors for August several hours before the close, especially if the market is holding up. I have set the table for you today, so you should have an idea what to expect and how to handle it. I'll be back in a few hours.
8:00 am MT: The market wiggled and faded out of the gate, but only the Naz is seeing heavy selling. Financials are selling a bit, but not as bad as they could have based on last night's futures. Airlines are down a bit as oil is up a bit, but the jump in oil prices is relatively contained at $130.00 so far. Any spike on oil above $133 - $134 and the overall market is probably going to sell.
I am floating the following Iron Condors for August:
DIA 106/107 Bull Put spread and 122/123 Bear Call spread for .23 cents (I got filled). This is a potential 30% return on risk for 28 days (25 days after the weekend).
SPY 116/117 Bull Put spread and 133/134 Bear Call spread for .30 cents (I got filled). This is a potential 43% return on risk for 28 days (25 days after the weekend).
IWM 63/64 Bull Put spread and 75/76 Bear Call spread for .26 cents (I'm waiting to see if I get filled). This is a potential 35% return on risk for 28 days (25 days after the weekend).
Also, I nibbled on puts for SCHN and NUE. If either stock drops $2 - $3 then I will sell the puts.
I will be away for the next several hours.
1:00 pm MT: I decided to take .26 cents on the IWM IC. I floated .27 for most of the day and couldn't get it. I was filled at .26, so that is a 35% return. I adjusted it on the entry above.
I also sold half my SCHN puts for a .40 cent profit, or 6% gain so far. In addition I sold part of the NUE puts for a .40 cent profit, or 9% gain so far.
1:10 pm MT: I'm not super inspired by the price action today, but I will go hunting anyway. I'm comfortable with the Iron Condors I did, and I also like the Steel puts so far. The market has had a relatively quiet day, especially in light of the horrendous earnings from last night. But yesterday morning's earnings, and this morning's earnings, along with the recent drop in oil prices is keeping a little air under the markets wings.
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I worked on my own Iron Condors today befor Dwight posted his.
ReplyDelete12:40:34 SOLD -20 IRON CONDOR DIA 100 AUG 08 119/120/102/101 CALL/PUT @.29 ISE for 41% return on risk -- Dwight used 123/122/107/106
13:27:19 SOLD -20 IRON CONDOR SPY 100 AUG 08 132/133/116/115 CALL/PUT @.29 ISE for 41% return on risk -- Dwight used 134/133/117/116
13:58:42 SOLD -20 IRON CONDOR IWM 100 AUG 08 74/75/64/63 CALL/PUT @.28 ISE for 39% return on risk -- Dwight used 76/75/64/63
So it looks like Dwight is more worried on the upside and I am more worried about the down side. We both are counting on a bear turn sometimes this month. I hope it doesn't get stuck in the high region!
Dwight,
ReplyDeleteI sent my IC orders in by 1 pm MDT and did not get filled for the SPY and IWM untill I dropped my credit below the Thinkorswim suggested price. Is it usual for orders to go unfilled even when below the median price for 2 hours?
I bought schn aug 90 puts with the stock at 89.80 and it closed at 88.87 and my optino is worth the same as what i paid. Is this because they are pricing in the weekend or cut the vol during the day?
ReplyDeleteKind of a rip off.
Steve: Do you use the mark as the current option price? I've noticed the implied volatility is relatively high for ATM strike SCHN.
ReplyDeleteSteve,
ReplyDeleteFYI, I think the ATM option is the most expensive option. What was the spread when you bought it? I think they were around .30 when I checked it earlier in the day. Seems like a nice entry when you took it though. I may have taken the 85 'cause 82 doesn't look unrealistic.
Ken, yes i was. i bought at 10:30 @ 6.60 and it is worth that at the mark now. I guess as the market stayed calmed through the end of the day the vol prob went down. I might start noting the vol when i buy out of curiousity.
ReplyDeleteKen: On the index ETF's, with real money, the best a trader can do is .01 spreads on both sides, and I ended up settling for between .01 - .02 cents on average on Papermoney. With a real order, it would have been hard to get .01 on every single spread. Your fills look about right.
ReplyDeleteSteve: I'm not sure if you got nicked on a .30 cent spread on SCHN, but that's possible. Whenever you encounter .30 cent spreads, try to get 1/3 of the spread, or .10 cents. It can be tough on a fast moving stock, but if the market makers don't play the game right, then move on to other stocks. It may also be that you got caught with a little time decay or volatility compression, but I didn't experience any myself. I'll watch for that on Monday with SCHN.