The Weekender starring VXX

I have a mechanical trade that I do each weekend in the $VXX ETF. The basic thesis is that this ETF experiences decay over the weekend and so I try to capture some of that by being short.

This trade is always a short. Always.

I do track various data points on the trade and here is a sampling of that data:

The expectation is that there will be some unprofitable trades at times (reality), some reflected above, but so far the gains have far outweighed them in 2012. No gain without some pain.

There are 2 basic trade approaches that I use:

  • Short the stock
  • Initiate a Bear Risk Reversal by selling an upside Call and buying a downside Put. There are weekly options, with tremendous volume, so you can implement this trade easily (sometimes for a credit !)

One additional rule that I have added in recent months is this: If the price is down 4% or more already on Friday then the trade is optional only (but will be monitored regardless).


The Fab 5 – update

It feels good to finally have a full roster again. I came into the week with $COST $DVA $LMCA as the current members. I ultimately added $AGU and $ULTI (wild day on 8/16) to round out the basket of 5 stocks.

I have 4 long stock positions and one twist: $COST is a September 95/100 Call Spread (financed in part by short August 95 Put trade that was closed on 8/15).

Here is the Summary:

Now that the August option cycle is complete, I will begin looking at putting on some September Collars to protect where I can (volume on options is sometimes a barrier).

How to protect a short position with a Bear Collar

A brief post on what I do to protect the short position that I have in $FB (Facebook). I put on what is called a Bear Collar. This is what I have done today:

Here is a breakdown of what this means:
1) I am short the stock
2) I have sold the August 24w 18 Put. This caps my gain at this strike on any move below $18 by next Friday.
3) I have bought the August 24w 20 Call. This piece protects me on any significant bounce above the $20 strike by next Friday.

August Option expiration

I have several trades in progress that involve August options. Since expiration is this weekend, August 18, I have been evaluating each position to determine what my strategy(s) should be.

Here are my current positions involving August options and my plan for each:

I do not have August options in the Fab 5 positions now (dealt with $COST earlier today). Remaining option positions are for September or further out months.

A few of these larger option positions have a stop to them. The $PCLN trade has the tightest one, currently at $2.45 on the remaining balance.

Using RSI – the series

I have a stock on my “to fade” list that I have continued to stalk this week and that is $PANL (Universal Display). Although I don’t have a position yet, I thought the Daily chart was a nice clean example of using RSI for an entry.

Here is the Daily chart with 2 areas noted in Red where the RSI touched the 70 level (signals Over Bought):

For now this stock is holding these recent gains very well so I am just an observer. For now …

Channel surfing in F5 Networks

I was reviewing some charts today in several stocks that I have been trading/stalking this week. One pattern that stood out to me was the channel that has developed in $FFIV since June (on the 100 day Daily chart).

It appears that folks have been channel surfing this summer:

Use this pattern as your guide for entry and exit for shorter term trades until it can break out – one way or the other.

Finding perspective in the Golden Arches

One of the big challenges in stock trading centers around the control of one’s bias – especially when the trader has an existing position in a stock. Often a trader will begin to see what they want to see in a chart to justify their position – and this can lead to plenty of trouble down the road if this becomes a habit.

It takes a lot of discipline, and a level of comfort with being wrong at times to ensure that you minimize this situation as much as possible. One way to do that is to put energy into your chart reading efforts that expand beyond just traditional moving average and trend line review.

One exercise that I like to do is to take a clean chart and create several differing/opposing views of the chart – then ask myself which is the most likely and which represents the highest probable outcome.

For an example, let’s take a look at a few charts in $MCD (McDonald’s Corp). The first is with a simple Trend Line (TL) drawn, Volume at Price (VaP) turned on, and the 65 day simple moving average:

In this Weekly chart, price has made quite a move in the past 12 months, but so far has avoided testing the slightly rising Trend Line below. It has taken 2 stabs near the $86 price level so that is decent support for now. Does it look like it wants to move down to test the TL below?

Now let’s take a look at the same Weekly chart but with the TL removed, and the Fibonacci levels added:

This chart shows that price has made 2 dips under the 50% retracement of the January 2011 lows and the January 2012 highs. You can also see that the largest Volume at Price bar resides at this price level. Can it hold this 50% retracement level ($87.25)?

For some additional perspective, let’s pull out to the Monthly chart:

From this view, it appears that $MCD remains in an uptrend with just a few pullbacks along the way since 2005.

Know your time-frame, keep a clear perspective, and trade what you see.

The “to fade” play in Osiris Therapeutics – an update

One of my strategies involves the preparation and execution on stocks that get extended. This can be for any number of reasons, but I build a “to fade” list of stocks each week with the intent of finding a viable short entry (either shorting the stock or putting on a Bear Risk Reversal).

Sometimes a trade from this list can take several weeks to develop, and other times it happens rather quickly (like with a Blowoff Top move).

I have such a trade on with $OSIR and thought I would do an update now that it appears to be trying to finding some footing just above the $8 level. Here is my initial entry posting from late June:

You can view the chart above here for a closer look. Here is a current Daily chart showing a flagging/consolidation/bottom process forming:

I currently have a stop on the short position set to $8.75 so for now it looks ok. There is not a lot of volume at this price level (note the Volume at Price bar to the left).