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Today


IVolatility Trading Digest™


Volume 10, Issue 2
Grab Bag

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
Please read IVolatility Trading Digest™ Disclaimer at the very bottom of this page

To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).
 

Grad Bag

In this Digest, we offer some strategy comments followed by the summary of our Model Portfolio performance for 2009 and then several trade suggestions in different categories. Next week we will return with our Market Review, but this week the focus is upon suggestions.

Strategy

As we begin the regular quarterly earnings reporting period crude oil is retreating from what appears to be a double top or the top of the recent trading range since it is no longer being supported by cold weather concerns. This is the still the time for seasonal weakness so it could retest the range lows around 70. From the long- term perspective crude oil is in an uptrend from the lows made last February so a decline below 70 would change the long- term trend. While we offer a short suggestion in the Seasonal section below, we note it is a counter trend trade and it needs to be managed carefully.

Weakness in the Euro is being translated into dollar strength, which is adding additional downward pressure on crude oil. We also note this is the time for seasonal weakness in gold so caution is prudent while the Euro is pushing the dollar higher.



Our Track Record

RISK-YES/NO

As of December 31, 2009, our Model Portfolio record of closed and open positions marked-to-market, after commissions for the year was a net gain of $9,785.70, up 9.6% from the end of September. During the quarter, we had an average initial margin requirement of $9,758.33 with a December 14, 2009 high of $12,717.05 and an October 16, 2009 low of $7,848.20.

Using a monthly weighted average for the initial margin requirement of $14,695 the interest cost was $236.59 less the interest earned on the cash balance of $9.78 for a net interest cost of $226.81. With a net gain of $9,555.89 after interest charges, the return on investment for the year was 65%. The return based upon the opening cash deposit of $30,000 was 31.9%.

During April we were 90% invested, however for the third and fourth quarters the average was 30% as we employed numerous hedging strategies at what appeared to be crucial points of increased market risk described in the various Digest issues in the second part of the year.

For those who may have an interest in reviewing the complete record you may request a copy from support@ivolatility.com Ask for the Excel file: IVTD Accounting Record Mark to Market 12-31-09.

Suggestions

All of the suggestions we offer require additional research. Check the fundamentals and read the news stories that are available on the Internet. Visit the company Website and read about their products and services. Then look at a price chart to locate support and resistance areas, gaps and other technical patterns. Finally look the volatility charts for the relationships between the Implied and Historical Volatility. We offer several levels of service to assist in this process. “My Favorites” and “Basic Options” offer a lot of good information without subscription. This is the best source of basic options information available anywhere. “Advanced Options” and “Advanced Historical Volatility” provide you will all the data needed for serious options trading strategies, including open interest, put/call ratios and more. The volatility charts we offer by subscription in “Advanced Historical Volatility” are the best in the business.

Monday is a market holiday so the time decay loss with be larger than for normal weekends and the option prices, based upon the Friday close will need to be adjusted lower.

Here are our suggestions by category.

Bullish Sentiment

Aetna Inc. (AET) 31.36. Sell Feb 30 put AETNF 1.10 - Implied Volatility 44.15, delta .3479.

McMoRan Exploration Co. (MMR) 13.94. Sell Feb 12 ½ put MMRNV .675 – Implied Volatility 76.73, delta 28.29 (Reports before the opening on Tuesday)

Bearish Sentiment

CurrencyShares Euro Trust (FXE) 143.55. Long put spread – Buy Mar 144 put FXEON 2.875, Sell Mar 140 put FXEOJ 1.325. Debit 1.55

Event Trade

MannKind Corp. (MNKD) 10.01. Sell Feb 7 ½ put MWUNU .675 – Implied Volatility 151.29, delta .1986.

Quarterly Earnings

Cree Inc. (CREE) 54.01. Call Credit Spread. Buy Feb 65 call CQRBM .50, Sell Feb 60 call CQRBL 1.325. Credit .825 (Reports Tuesday after the close)

Western Digital Corp. (WDC) 43.98. Sell the Straddle. Sell Feb 44 call FJIBR 2.25, Sell Feb 44 put FJINR 2.25. Credit 5.50 (Reports Thursday January 21 after the close) Close on the expected decline in implied volatility.

Rising Implied Volatility

RRI Energy, Inc. (RRI) 5.53. Four Leg Iron Condor – Leg 1, Buy May 4 put ULAQD .175, Leg 2 Sell May 5 put ULAEQ .45. Credit this side .275. Leg 3 Buy May 7 call ULAEG .20, Leg 4 Sell May 6 call ULAEF .50. Credit this side .30. Total position credit .575.

Seasonal

United States Oil (USO) 38.40. Long Put Spread – Buy Apr 38 put UBOPL 2.15, Sell Apr 35 put UBOPI. Debit 1.125.

Takeover File

E*TRADE Financial Corporation (ETFC) 1.84. Long Call Spread – Buy Apr 1½ call EUSDY .435, Sell Apr 2 call EUSDF. Debit .24.

Leap Wireless International Inc. (LEAP) 15.16. Sell Apr 12 ½ put UBEPV .875- Implied Volatility 69.89, delta 2335.

Upgraded on Improving Fundamentals

Las Vegas Sands Corp. (LVS) 18.40. Sell Mar 17 ½ put LJJOV 1.265 – Implied Volatility 56.14, delta .3697.


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In next week’s issue, we will again offer our updated market review and strategy comments.

Previous Issues and Reader Response Request

Finding Previous Issues and Our Reader Response Reques

All previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue.

As usual, we encourage you to let us know what you think about how we are doing and what you would like to see in future issues. Send us your questions or comments, or if you would like us to look at a specific stock, ETF or futures contract, let us know. Use the blog response at the bottom of the IVolatility Trading Digest™ page on the IVolatility.com Website. . If you would like to receive the Digest by e-mail let us know at Support@IVolatility.com.

Comments:

Thank you for the weekly Digest of Suggestions and Market review.

I have been a regular reading of the Digest and have learned for a lot from it.

I like the new format and the numerous suggestions.

I would appreciate if you would provide any update necessary on the suggestions in the future Digests, when applicable.

Thanks

Posted by HM on January 17, 2010 at 11:27 PM EST

HM,

We thank you for your kind comment and encouragement. We changed the format to allow more space for more suggestions when we do not include the Market Review. We think this will result will be more ideas. We will keep the records for specific examples, but since we are not maintaining a complete portfolio record of all the suggestions and ideas in 2010, we may not be providing as many updates as we did in 2009. Please let us know if you have any questions about specific ideas, sources of data or the process.

Jack

Posted by Jacktrader (72.193.217.6) on January 18, 2010 at 04:08 PM EST

Jack

Thanks for your reply.

Your Trading Digest already gives a lot of information. If I have any question, I will defintely let you know.

Posted by HM on January 18, 2010 at 11:36 PM EST

Thank you for your January 18 2010 Trading digest
Volume 10 Issue 2. I used your suggestions, they seem great. Of course I agree to use your suggestions. That is exactly what I want. I understand what I do, but I have not the time or the capability to use myself a tool to find the opportunities. I tried alredy with Research wizard of Zacks...Will you tell me at what conditions you will continue that kind of suggestions.Thank you for giving a mail answer.
Galant Hubert from Belgium.

Posted by galant on January 20, 2010 at 09:40 AM EST

Galant,

Thanks for your support and taking the time to respond. Since we have received a good number of requests for more suggestions this will be our focus in the upcoming Digest Issues. Our only real limitation is the time it takes to prepare the Digest as we try to get it posted on Sunday nights.

Jack

Posted by Jacktrader (72.193.217.6) on January 25, 2010 at 03:21 PM EST


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IVolatility Trading DigestTM Disclaimer
IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter constitutes a recommendation to buy or sell any security. Before entering a position check to see how prices compare to those used in the digest, as the prices are likely to change on the next trading day. Our personnel or independent contractors may own positions and/or trade in the securities mentioned. We are not compensated in any way for publishing information about companies in the digest. Make sure to due your fundamental and technical analysis homework along with a realistic evaluation of position size before considering a commitment.

Our purpose is to offer some ideas that will help you make money using IVolatility. We will also use some other tools that are easily available with an Internet connection. Not a lot of complicated math formulas but good trade management. In addition to Volatility we use fundamental and technical analysis tools to increase the probability of success and reduce risk. We prepare a written trade plan defining why the trade is being made, what we call the "DR" (determining rationale) and the Stop/unwind, called the "SU".