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Twist Those Dirty Bags!

Tim Knight from Slope of Hope's picture




 

From the Slope of Hope: Greetings from Whole Foods Market in Palo Alto. There are times when I simply have to get away from my home office, since even I have limits as to how many hours I want to stay in the same place. I come to Whole Foods often enough to notice that a fair number of insane people come here. I divide them into (a) insane people without money and (b) insane people with money.

The insane ones without money are the more obvious ones. They are the ones yammering to themselves, or dressed in really peculiar outfits, or otherwise looking semi-homeless. The ones with money require a more discerning eye (or, in my case, a good memory). FLASH update: at this very moment, one of group (b) sat next to me and is having a business meeting on speakerphone. Astonishing. (It's a very typical conversation: "I'm just trying to keep my day job while trying to raise money for my pet project.")

Today was really annoying from a trading perspective. It started off profitable, got really profitable, and then withered into a small loss. A market that isn't "allowed' to go its natural direction gets to be irksome. We've been trapped in a fairly tight range for the entire year.

I'm still pretty comfortable shorting this market, and on Thursday I increased my positions from 62 to 80. I've still got 64 other prospects, but their price isn't where I'd want them to be to short them. There are five charts that I think speak to the good prospects for bearishness. My favorite of them I shared this morning with my (beloved) Slope Plus members, but here are the others:

The Dow Jones Composite has painted out a beautiful series of lower highs. My fervent wish, of course, is that the recent surge we have been dealing with is just another opportunity to disappoint our bullish friends.

0730-comp

The S&P 100 has quite clear broken its wedge pattern:

0730-oex

Similarity, the Russell 2000 broke its own wedge and has a pretty decently-formed head and shoulders top in place:

0730-rut

And my intent is to remain stalwart in the face of bullish bluster and nonsense until we get a VIX spike to the mid-20s. I know that seems impossible, but.....that's my benchmark.

0730-vix

Another guy just sat down to replace the one earlier, and he's talking to someone about his startup. My God, this place has lost its mind. But it's doing so with money, so people forgive the insanity.

 

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Thu, 07/30/2015 - 21:38 | 6373649 dexter_morgan
dexter_morgan's picture

I gotta admit when I read the title to this article I thought it was going to be about Hitlery and fauxcohantas.

Thu, 07/30/2015 - 20:45 | 6373454 conspicio
conspicio's picture

This, this imagery pleases me greatly. Jeezuz, I read the headline "TWIST THOSE DIRTY BAGS" and part of my brain expected a photoshop of someone grabbin' Hillary's tits. Clicked through with one eye kinda open and was pleased there was no such imagery. Well done clickbait for the dark side of the brain, sir, well done.

Thu, 07/30/2015 - 19:19 | 6373174 mrdenis
Thu, 07/30/2015 - 18:46 | 6373085 Lokking4AnEdge
Lokking4AnEdge's picture

Prices of call options across the board are insane at times (see "AMBA" or "ANET" for example)

Shorting the options look like a better risk/reward than actually shorting the underlying stocks....

 

 

Thu, 07/30/2015 - 20:27 | 6373395 TheRideNeverEnds
TheRideNeverEnds's picture

it always is, selling OTM options puts the probability of profit in your favor at order entry and works well till one day the underlying gaps open 30% higher on some rumor and you see what infinite risk really looks like while those times you sell those calls and the thing drops like a stone you only have a certain max profit, far far less than outright shorting the underlying.  net/net everyone is statistically disadvantaged at order entry and the house wins on the rake no matter what you do so long as you do something.  

 

options pricing is perfect on paper and in practice the what you end up with in the end is timing, luck, and mainly trade management because from a straight math standpoint the machines on the other end wont make the trade with you unless they have at least a little edge and you will 100% lose over time when you factor in fees if you let em all just go to expiry. 

Thu, 07/30/2015 - 18:19 | 6372997 OC Sure
OC Sure's picture

 

 

VOLUME, please!

Who can read a map without knowing its key?

Thu, 07/30/2015 - 18:05 | 6372937 KnuckleDragger-X
KnuckleDragger-X's picture

It takes a brave man to short the insane asylum......

Thu, 07/30/2015 - 19:14 | 6373166 logicalman
logicalman's picture

Or an insane one.

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