Thanks for all the visitors, good trading,
|Simple Trading Ideas||
I really enjoyed posting here a couple of times a week over almost a year and a half. I intended to educate myself with my posts but in the meantime a realized that there were a lot of people around the globe who were interested in my writings. My main goal with this blog was to describe what the market was doing using mainly technical analysis. I almost always included a chart to visualize where things were going. I was using these observations in my own trades. Since I have been blogging here I refined my technical analysis and I developed techniques I feel very comfortable with. This blog also served as a journal for me although I didn't go into details about my personal trading. During the past few months I realized that I got distracted and I started to focus on what my audience would like instead of what I would benefit from the most. After all this about trading and making money. As a result I decided that I will take my future posts private. I will go into more detail specifically about my trades. These posts would be too personal to share. I will leave this post open to public so everybody can search it and I will probably search it too.
Thanks for all the visitors, good trading,
Duke Energy Corporation is a large-cap company with around 50 billion market cap. It has a low beta value and the correlation to the S&P 500 is not even close (as you can see in the indicator window below the daily chart), but this stock is not boring. Duke is moving in an uptrend, you can check it out on the weekly chart and it makes around 9-10% impulsive waves and around 6-7% corrective waves as it slowly advances higher. This company has good fundamentals too. All these make Duke a good candidate for swing trading. The daily chart below shows a recent trade setup using Elliott Waves with Fibonacci Levels. The stock completed a corrective wave right before the middle of June marked with i-ii-iii. The 200-day moving average provided support. Wave iii is shorter than wave i and this makes this setup even more bullish. The stock quickly started to move higher in wave 1 when the smart money started to buy. The green volume bar nicely broke above the average trading volume. Wave 2 followed wave 1 with a 50% retracement. This can be seen better on the Hourly chart, not shown here. On June 18, yesterday, the price broke thru the blue line which is the upper channel of the corrective downtrend and the stock advanced 2.40%. This is when the retail traders started to pile in. The volume bar confirms that too. The stock nicely advanced today too. So currently we are in wave 3. wave 3 has the potential to extend twice as long as wave 1 or even more. Using Fibonacci levels and the upper channel (green line) I am estimating how far this move can extend. If I want to be more conservative I set the target to the 123.6-138.2% level or the 150% level. Of course there will be some red candles on the way up to the target and also a wave 4 which will probably be shallow.
As I pointed out in the previous post small-caps are outperforming large-caps. It is also true that mega-caps are underperforming large caps. To trade the pullback you don’t want to pick a strong stock which only slightly moves lower but you want to trade a weak one. The best thing to do in this case is to pick a mega-cap stock which underperforms mega-caps, DIA. I picked Chevron, CVX for this reason. Chevron trades with S&P 500 or DIA as you can see it on the chart and underperforms it as you can see below the chart. To take advantage of the short term downtrend I entered a trade on September 23 with a bearish CVX Nov 120/125 put spread for $1.90. This spread trades for $3.05 today which is a 60% increase. The breakeven point for this trade is 125-1.90 = 123.10. CVX is currently trading at $120.83. The reason I bought a spread instead of a simple put is to better control the breakeven point, the “risk”. CVX hasn’t reached my downside target so I expect more profit from this trade before closing the position.
I put in a couple of trades recently and I'll show them in my virtual trading account. One of them is a VIX call option with September expiration. It didn't make as much money I thought it would but it still has some potentials. I also bought a GLD straddle. I am not too happy with that, I'll sell it. I expected a bigger move, but it still made some money. The best one is a SPY put with October expiration. I will definitely keep this one for a little longer.
To read the first part Click Here. As I mentioned in my previous post this is a virtual trade. I bought this MSFT Sep 13 33/36 debit put spread for 1.33. As you can see below it's currently trading for 2.58 which is 93% profit so far. The maximum possible profit of this spread is 125%. There is no sense to wait until September for a few more percentige point so I will exit the trade next week. Below I also included the price chart for MIcrosoft.
MSFT was already overbought in April and showed some weakness since then. A divergence was forming between the RSI indicator and the price chart. Prices were moving higher but RSI was moving lower. The price chart shows that MSFT clearly lost momentum and some kind of top was forming. Continue reading below the chart.
One way to take advantage of a correction like this is to buy a Debit Put Spread. A Debit Put Spread consist of a long Put with a higher strike price and a short Put with a lower strike price. What we pay is the difference, a Net Debit.
Buying a Put and Selling another Put lowers the cost but there are other benefits too. The time decay and volatility is sort of neutralized since the long and short position cancels out each other. Even if the price doesn’t change time decay won’t take a bite out of your position.
Another advantage whit debit spreads is that you will know ahead of time the Maximum Profit and the Break-Even Point at expiration. For as long as your position is open these parameters won’t change. Depending on how you choose the strike prices the Break-Even Point could be very close to the current price. This way even if the stock only slightly moves you can still make money.
In the current example I used my Virtual Trading account to open this position. I bought 20 MSFT Sep 13 33/36 Put Spread for 1.33 Net Debit each. The total cost was 1.33x100x20 = $2660. The Maximum Profit = (36-33)-1.33x100x20 = $3340 which is 125%. The Break-Even Point is 36-1.33 = $34.67. I entered this position on 6/12/2013 when MSFT closed at $35.00. In this case as you can see if the price moves down more than 1% until September we are going make money. Today, when MSFT closed at $33.26 the value of this position is 1.83 for the total of $3660. It already made $1000 or 37% in 9 days.
If this was real money in a real account I would probably exit the trade and take the profit. For now in my Virtual Account I will leave this trade open since I see further weakness during the next few weeks.
SSO is the ProShares Ultra S&P 500 Fund and SDS is the ProShares Ultra Short S&P 500 Fund. With these two ETFs you can take advantage when the market moves up or down. Buy SSO when the spread between the bottom two charts narrows and Buy SDS when it widens. The chart below is a 15 Min charts so it's only for short term trading. Currently the spread between SSO and SDS narrows.