Push to Round Number Resistance

By Jeff Pietsch | September 02, 2010 | 3:15 PM |  0 CommentsTweet This

The SPY has been flirting with $109 for the last couple of hours. Internals are positive, but I expect increasing resistance between here and $109.50, the 200-day ema, ahead of the jobs report tomorrow.

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Options Active in Two Major Housing Stocks

By Steve Claussen | September 02, 2010 | 2:27 PM |  0 CommentsTweet This

The OptionsHouse Hotlist is a scan of unusual option volume throughout each trading day. The Hotlist is accessible by all OptionsHouse customers, including those with virtual trading accounts.

Housing stocks saw some attention from option traders Wednesday after Tuesday's Case-Shiller data offered a faint glimmer of hope for the housing sector.  The index, which tracks home prices in 20 major U.S. metropolitan areas, rose for the third consecutive time.  Prices increased in 17 of the 20 regions and are collectively 4.2% higher on a year-over-year basis.

Homebuilding name Lennar (NYSE: LEN) is closed more than 4% higher yesterday and investors appeared to make a modestly bullish bet with a large block of short puts.  In mid-morning trading on Wednesday, a block of 11,000 out-of-the-money October 13 puts crossed the tape right at the bid price of 70 cents per contract (the investor would have collected $770,000 in overall premium).  Open interest at this strike was just 254 contracts heading into the session, suggesting this volume traded to open. 

LEN is currently perched at $13.74 so if it holds steady, moves higher, or even declines as much as 5.3% (to the 13 strike), the investor keeps this credit collected as the put will expire worthless.  This is the maximum potential profit for this trade.

If LEN is trading below the 13 strike at expiration on October 15, the put seller will likely get assigned and required to purchase the shares at an effective price of $12.30 (the strike minus the initial credit collected).  Risk is then significant down to the zero mark but technically capped at $12.30.  Either this investor feels comfortable in the thesis that LEN will hold above 13 through October expiration or is willing to own the stock at the $12.30 level (which is also the breakeven for this trade).

Meanwhile, in D.R. Horton (NYSE: DHI), another housing name, traders may be hedging themselves.  The out-of-the-money October 11 call saw more than 8,000 contracts trade today on open interest of 460.  The largest block (4,990 contracts) traded at 11:28 a.m. Eastern Time and went off at 43 cents, which was below the bid price at the time.  It looks as though these calls may have been sold to open.

If the investor simultaneously bought stock (or already owns DHI shares), this is considered a covered call.  Losses in the stock would be partially offset by the 43-cent credit collected, but the stock position would probably be called away at the 11 strike, cutting any potential gains off at the knees if the stock rallies in the next six weeks.  The most the covered-call strategy can lose is the strike price minus the credit, or $10.57 (should the stock fall to zero).  The maximum profit is the credit collected for selling the call plus any gains in the stock up to the strike price.

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Trading ETF Currency Pairs

By Jeff Pietsch | September 02, 2010 | 12:07 PM |  0 CommentsTweet This

Yesterday's Wall Street Journal reported foreign-exchange currency trading volume at over US $4.0 billion per day.  [See "Currency Trading Soars"] While the ETF currency tracking indices have neither the volume, round-the-clock possibilities, nor the narrow spreads, they do make for convenient means of testing various currency pairs performance.

Before running ETF Rewind tests, I hypothesized that the trending characteristics of currencies would make this a difficult enterprise. However, after a little perseverance and over 100 combinations later, it turns out that with sufficient volatility, currencies moving in tandem still present opportunity....

 

Is it a surprise that the fast moving Japanese Yen (FXY) has recently presented one of the better matches? The chart above highlights the pairings with the best return/equity curve linearity combination over the last six months, including, among others, FXY : BZF/ BNZ & CEW, all characterized by back-tested returns exceeding twenty percent and returns linearity approaching 90%.

Read more: http://etfprophet.com/trading-etf-currency-pairs/#ixzz0yOAkNB9E

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Milestones: Past, Present & Future

By Bill Luby | September 02, 2010 | 8:40 AM |  0 CommentsTweet This

Several different milestones seem to be converging in time at the moment and I thought this would be a good opportunity to acknowledge them.

Last month the blog recorded hit number 2,000,000. While I wasn't there to record the event as it happened, looking at Google Analytics, there is a pretty good chance it involved someone surfing in to get some information on VXX. Whoever it was, thanks for dropping by and I hope you found what you were looking for.

Some time earlier I accumulated my 3000^th follower on Twitter. My enthusiasm for Twitter has spiked up and down over the years, but I have settled comfortably into using Twitter to flag posts of interest around the blogosphere; highlight breaking news of particular interest; comment on the VIX and VXX, as well as related options, futures and ETFs; make occasional intraday market calls; and indicate whenever I have something new posted on the blog. I try to keep my comments to only a couple per day so as not to create visual gridlock. Readers can follow me at http://twitter.com/VIXandMore.

Looking ahead, sometime in the next month or two I will have 500 posts up on Seeking Alpha. I mention this because Seeking Alpha has recently expanded their functionality and I am now utilizing their private email to respond to reader questions and have also begun to respond to comments posted their on my articles. Looking ahead, Seeking Alpha in the process of adding some investing apps and I hope to review some of my favorite in the next few weeks. For those who are interested, my Seeking Alpha posts can be picked up at http://seekingalpha.com/author/bill-luby.

Thanks for all who have contributed to the dialogue here, both in public and behind the scenes.

Related posts:

• The 1000^th Post
• VIX and More 2009 Year in Review
• On Twitter
• Two Year Blogiversary
• Odometer Turns Over
• One Year Blogiversary!
• Converging Milestones

Disclosure(s): none

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EUR/USD Dipper: Part 2

By Bob Barnes | September 02, 2010 | 8:39 AM |  0 CommentsTweet This

This is a follow up to yesterday's post with the chart reflecting hourly bars over almost 5 days. The trade setup is pretty transparent and is based on the premise that overnight traders have a leading edge to the coming open and will react accordingly.Keep in mind that the time scale is based on Chicago time.  Our goal here is simply to pick up some easy money from the the overnight surge and then get out at 8:00 just before the US equity markets open. As a conditional factor, we only enter long if the 8 bar SMA of 10 minute bars is up slope. The setup is reversed for short positions, additional details of which will be reviewed in a later post. A 15 pip stop loss helps to control potential reversals.  Over the past 2 weeks this setup has produced some  spectacular results and if you're a FX trader this short term momentum setup may be worth a closer look.

Related posts:

1. The EUR/USD Dipper: Part 1
2. ETF Pairs: FXE & GDX
3. 30 Minute Overnight Tell
4. The Wailing Baby Trade
5. The 816 cross

Read more: http://etfprophet.com/eurusd-dipper-part-2/#ixzz0yNKcdmxw

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