Thursday, January 17, 2008

Dow Down 300, Worried about unknowns for Options Expiration

Although we made back some money with our Ultrashort ETF, it took a strong stomach to weather the opening. Having a 91 entry price meant a having a stop just below 81, and watching it open at 87 could have been frightening. Luckily for us, it held at 85.5 about 20 minutes into the trading session and rose throughout the day.

Trading the ETFs is similar to futures trading in that you have to anticipate what the market might do. Most of the women I speak to have an intuitive feel on the daily ebbs and flows of e-mini contracts such as the S&P 500. The only male trader I know who consistently made money trading the indexes was wally or Wallstreets_master.

Now regarding today's action, there were better % movers to take advantage of today's action such as EEV and notice the chart looks better when compared to our FXP.

I find that when things are starting to get better, I'm writing down two different trading plans for the next day's or week's action so that I always consider the counterargument and avoid the potential "deer in the headlights" that occurred earlier this month.

Because its options expiration and the fact the markets are closed on Monday, there's a probability that the Fed Chairman announces a surprise rate cut on Tue before the bell, or even intraday tomorrow. Since I'm a little fearful of having that possibility wipe out two days of gains here's my initial trading thoughts:

1) If the markets gap LOWER for the opening 15-30 minutes and if the FXP is trading around 99, I'm likely to sell the position and take the 8 point profit. Even though it could easily breach 100, I don't think the market will make it that easy. One particular reason is because the FXP has never had a positive gain for seven straight trading sessions. Tomorrow would be day six if it finishes green.

2) Ideally for me, the Dow at the open has at most a 120 point gain on somewhat suspect volume in the opening 30 minutes. This could allow me to temporarily add a few hundred shares to almost any Ultrashort ETF for a one day flip. If the Ultrashort ETFs gap lower at the open but at some point turn green and stay green for 30 minutes, then it increases the chance of holding the position over the weekend. However, its more likely I sell at least 25 shares at the close to lock in something.

Now even though I'm typing my initial thoughts now, the best trait of day and swing traders is too be flexible enough to adjust to what the tape says. Even though its a guaranteed certainty I'll sell 25 shares tomorrow, I could either have 475 shares, or 200 shares, or zero shares by the end of the day depending on the tape action. While I'm aware that the primary trend of the averages is still down, we're coming to the point depending on whatever indicator you're looking at such as Tradestation's T2108 indicator that a short term bounce is imminent. Even if it's a one day bounce, a 300 point Dow move bounce will wipe out more than two day's of gains. Playing the index ETF's means having to be ahead of a potential pivot point to avoid getting killed.

YTD -6.7%

No comments: