Volume Bar Buy signal in the Powershares QQQ

One of the key ETFs that traders monitor is $QQQ. As is the case with most charts that I review, there are often good simple approaches to creating a trade trigger approach.

As part of the Simple Approach series, let’s take a look at the Daily chart:

This is a chart that goes back to May 2012. The following is the Buy signal trigger info:

  • Buy the 1st Green candle after 4 Red volume bars in a row
  • Use a 2% stop
  • 4 triggers up to this point

For a Bearish slant on this chart, here is the Sell signal trigger info:

  • Sell the 1st Red candle after 5 Green volume bars in a row
  • Use a 2% stop
  • 3 triggers up to this point
  • The August & November triggers would of stopped out the next day (quick trades, small losses). The September trigger would have been the big winner, all the way down to the November lows.

 

How the new 5 consecutive Weekly Option schedule changes Earnings trades

One of the exciting changes to Weekly Options is the addition of 5 consecutive Weekly Option expiration on stocks. I first wrote about this here regarding how this would enhance short-term trading in stocks using $AAPL as an example.

This week we had an earnings event in $RIMM and it just so happened that this new schedule was available for this stock. Awesome. Because I frequently use Options to do pre-earnings trades, this added a LOT more choices in constructing a trade.

I ultimately settled on this trade:

I wanted to be long with uncapped upside, and I wanted good downside protection at a low-cost. Here is a breakdown:

  • Long the stock
  • Short the January 4 13.5 Put
  • Long the January 11 13.5 Put
  • This Put Calendar cost me $.16

Without the availability of all Weekly’s up to the January Monthly expiration, I would have only had the choice of using the following Weekly & Monthly expirations. This flexibility allowed me to shorten my time-frame on the Put Calendar but still providing the protection I wanted since this is an event trade. What a deal.

Here is how the trade unfolded:

I did a few short stock scalps post-earnings as price fell through the 13.5 Put strike area. I remain long this Put Calendar.

 

Weekly Option schedule: http://www.cboe.com/micro/weeklys/availableweeklys.aspx

 

Position Updates – 12/22/2012

 

Note: new or position changes from prior week are in italics

On the Long side:

  • $JCP (with a January 22/20 Collar)
  • $T
  • $DVA (& own the January 120/110 Collar)
  • $SYY
  • $DDD
  • $N
  • $EWW
  • $SPRD
  • $SWHC (Long Jan 12 Call)
  • $KONG (January 5 Call)
  • $ORCL (Short the January 33 Put, bullish/neutral piece of January 33 Straddle Sale from earnings)

On the Short side:

  • $GRPN
  • $HLF (from 12/19, with a December 28 weekly 27.5/30 Bear Collar on 12/21)
  • $ORCL (Short the January 33 Call, bearish/neutral piece of January 33 Straddle Sale from earnings)
  • $RIMM (Long the January 11/4 13.5 Put Calendar from earnings)

The Fab 5 positions are noted in my weekly update post for that basket of stocks. The post on the ETF Short pairs trade forĀ  $TNA / $TZA & $FAS / $FAZ will be done at the end of the year when the trades are closed.

The Fab 5 – weekly update

December Monthly Options expiration was a wild one, it did not disappoint for those that like Volatility. I came into the week with 3 positions in the basket so I had 2 empty seats to fill. I had a small, solid candidate list, but never found a comfortable entry to fill out the basket.

2 of the positions had December Options as part of the trade so I had to manage those pieces into Friday. The $CP positions was called away due to the Short Call part of the Collar being ITM. This was fine with me as this position had already completed the $100 Roll. The $ORLY position looked interested in a Pin at the $90 strike. I managed to get some value from the Long Put, selling it for $.25 on Friday. The Short Call piece expired so now I need to look at the January Option chain for a new Collar.

The other position is $MON – a January 90/95 Call Spread which looks good going into the New Year. Here is the Summary:

Candidate List:

  • $WPI
  • $CNI
  • $MHK (may be hard to do this within the 30 trading day rule but promising)
  • $ARG
  • $FDX (may be hard to do this within the 30 trading day rule but promising)
  • $LMT (survives the Budget cuts, lookout)
  • $HYG (considering ETFs now)
  • $IWO
  • $TWC (tried several times)

 

 

The anatomy of a trade starring Bed Bath & Beyond

I received some great questions yesterday regarding a post-earnings trade that I initiated for $BBBY and thought I would provide a breakdown here on what the strategy is as well as a few scenarios on how it can play out.

Here are the details:

  • Long stock at 55 on 12/20 (1/3 position)
  • Short the December 55 straddle at $.98 on 12/20 (1/3 position)

So what does this mean? I often scale in (and out) of trades so this is a typical approach for me to enter a trade in pieces. The twist here is that I elected to sell premium on $BBBY due to its elevated IV. In selling the straddle, being short a Call and a Put, here are 3 potential ways that this trade plays out:

  1. Price stays above $55 so my long stock position is called away. The gain is capped at 55.98 no matter what. Trade would then be closed.
  2. Price stays flat to down, but stays above the $55 strike. Can buy back the Short Call piece and let the Short Put piece expire worthless. I would keep the balance of the premium collected and still hold a 1/3 position long in the stock.
  3. Price drifts under $55. Depending on where it is by 3 PM EST, I would utilize the $.98 in premium collected (my cushion) to manage against the loss I would have on the long stock position.

 

December Options expiration – judgement day

I have several trades with December Option pieces remaining that I am managing today. Several from the Monday post have been closed, here is what remains:

Regular Trades

$DDD Long stock with Short December 50 Call (Covered Call). Call is ITM with a bid/ask of 1.00/1.15 (sold for 1.30 on 12/18, 1/2 position).

$SWHC December 12 short Call looks to expire. Remain Long the Jan 12 Call (good luck with that, lol).

$PAY has drifted under the $29 strike, the Put is slightly ITM but just observing it for now (likely called away, fine by me). The Long 30 Call (other piece of Bear Collar) looks to expire worthless. Trade is tied to short stock from 31.35 on 12/14.

Fab 5

$CP I am long the stock with a December 100/95 Collar. I expect this position to be called away – $100 Roll already Complete – so I am fine with that.

$ORLY I am long the stock with a December 95/90 Collar. The Long Put currently has a bid/ask of .10/.20 and the Short Call is OTM (so expect it to expire).

 

ITM = In the Money

OTM = Out of the Money

Volume as an indicator

Often times in stock chart reading you are not able to get a clean read on the direction that a stock may be going. You may have a number of things within a chart that help create a bias, like a moving average that has been support several times in the past, but there are always elements that provide a hint of doubt.

There are moments however where one indicator on a chart sticks out like a sore thumb. For an example, I bring you the Daily chart of $SCS:

It is said that only Price pays. However, it sure is nice when volume is screaming: “they want in”. A very nice run up into earnings, a nice reaction to their report as well.