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Timely Trading Tips For 8/5/2011

Submitted by Reggie Middleton on 08/05/2011 03:41 -0400

Sixty points down on the S&P with most world markets following suit! What a day, what a day. This is what those Armageddon puts discussed Yesterday morning looked like by the end of yesterday's trading session, up 265% in profit!

The SPX/e-mini options are admittedely a pain in the ass to trade for many retail investors, so I posted a useful illustrative guide on a lower cost (out of pocket) alternative - Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists.

Things were moving so fast that the market was breaking literally as I was posting it. Long story, short - if you believe that the Circle of Economic Life is about to come back to the forefront, you should still be stocking up of volatility. If not, then hedge up and sell of for full profit.

As excerpted from the afore-linked post:

What It Takes To Actually Make Money

ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.

Any reversion to bank collapse volatility makes even today's option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

Reference Do Black Swans Really Matter? Not As Much as ...

...

All subscribers are welcome to download this full document This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups.

The following is a quick note from Eurocalypse on the topic...

Hi Reggie

This is terribly impressive, and I am in admiration with the timing of your call.

He is referring to the timing/macro/fundamantel call - I recommended he put together a vega trade via SPX/SPY opition setups last week, but a day or two delay combined with a rapid plunged gave scant time to take advantage of it

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

Take off X% of the initial strategy to make it 0 cost,
Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

I'm actually quite confident it's going to happen, the issue is timing is everything, hence OTM longer dated puts.

Longer term down the road im even more pessimistic than you are.USSR 1989, EURO 2012 and put US, UK and Japan with it probably as well.

Beyond that chaos anarchy wars? I hope not but terra incognita!

The decision of BNY Mellon to tax big deposits is a prelude to financial repression, freezing accounts to prevent a bank run.

See BNY Mellon imposes fee on rapidly growing deposits, in short, the bank will punish anyone who does not invest their money in risk assets of some sorts. That's right, a bank that is trying to discourage you from saving in cash. What the hell??? This is probably just the beginning as the TPTB attempt to force capital into the Ponzi pool in order to keep the facade of value on devalued assets...

... having a max of money "voluntiraly" invested into debt instruments which wont be repaid...
What things like this will do is ensure the reverse will happen. The smart money will exit first en masse which will make sure they end up NEEDING to freeze these accounts.

Anyway, its a pleasure contributing to your blog

thanks

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Fri, 08/05/2011 - 11:41 | 1527060 JW n FL

Lobby Debt Deal Fail

http://www.presstv.ir/detail/192462.html

'US debt deal epic financial blunder'

The best Congress Money can Buy!

Does NOT! Represent "We the People"!

Fri, 08/05/2011 - 08:38 | 1526277 Grand Supercycle

S&P500 chart originally posted January 2011 ...

This monthly chart show a series of broadening patterns, aka
megaphone wedges. The three broadening formations pictured
reveal an unstable market where buyers and sellers battle for
control. The first two megaphones make clear the eventual victors.

http://stockmarket618.wordpress.com

Fri, 08/05/2011 - 10:33 | 1526731 Escapeclaws

Absolute nonsense. You could have drawn those megaphones anywhere! That's what I hate about technical analysis. It's such a scam.

Fri, 08/05/2011 - 07:36 | 1526132 Coldfire

Congratulations, Reggie. You called this one, too. Hope you made a shedload of money.

Fri, 08/05/2011 - 06:43 | 1526066 disabledvet

there's no such thing as "gold trading." there is "flag placement" of course. the oddity that American flags are being place on pretty much every pile in the vault should be lost on no one. certainly the Koreans and Thai's got it.

Fri, 08/05/2011 - 06:36 | 1526057 Arch Duke Ferdinand