Vodafone - VOD

i like patterns, especially those that play out like clock work.

such patterns give me confidence when forming a view and plan a trade.

TXN - Approaching Long Term Support

A long term support line established from 1996 pricing, shows a support coming up at ~$20 for TXN
Volatility is at the highest now, at 56%, since a year ago. More over, there's a +ve put/call skew currently but only for the Oct chain. Oct has only 17 days to expiration. Unadviceable to enact front month. Disadvantaged by too little time.

WFMI - reaching long term support

caught my attention....
maybe wait a bit more for price to dip further... then perhaps a bull call spread it..

RIMM - One Word

WTF !!!

lost 50% of it's stock price value in ONE month...

this is really a break and bury case...

SP500 - 2 Words

2 words

RSI and Support

WMT - What's The Deal ?

I like simple things, as much as I am put off by unnecessarily complex characters I meet, fortunately only very occasionally.

Trading is in itself complex enough, no need to add more complications to that.

If I had only one word to describe WalMart, it would be...... "NTUC". It is nothing more than a successful group, with superior purchasing and hence bargaining power, and they sell almost anything you'll need in the cause of living; well almost everything.

So, if I think WMT is nothing more than the our version of NTUC, would I buy into its stock as an investment? Yes and No.

Yes, if I am in it for the dividend, for the income, strictly speaking. But No, I wouldnt add any WMT into my investment portfolio, if I am looking for year in year out profit growth, consistent top line revenue generation year on year.

So, my decision to invest will be based on my intentions of my investment. Is yours?

WMT - Monthly Chart

SBUX - Is The Business Still As Aromatic ?

SBUX took drastic actions in 2008, namely to reduced the number of coffeeshops they operate worldwide. Seems a reasonable tactical strategy to adopt to counter the expected fewer people buying their expensive kopi; better lower their operating costs if they cannot expect sufficient top line revenue in the immediate future to defray static costs.

The founder obviously lost faith in his CEO employe when he decided to take over the helm. I like this move, because this means Schultz hung up his fishing rod, folded up his sleeves and got back to work... when the founder gets involved again, he either makes it a real success or he will lose his original passion for starting the business and it will not survive challenges.

SBUX - Monthly Chart


Buying into SBUX, to me, is the classic case of buying into a believe of a man, Howard Schultz. If you believe he can restart, rebrand and reinvent SBUX's business, that ~$13 support level should help you to decide if you wana go long haul with howy.

ps : some possible plays

a) long term calendar spreads (at least 6 months)
b) short Oct 13Puts

good luck....

SPX - Possible 1170 Support ?

It's been sometime that I have posted any charts on major US indexes.
Frankly, the reason has got to do with my inexperience in reading indexes that have been doing major see-saws over the last 1 month or so.

The exercise almost became futile, with candles indicating a possible reversal one period and then totally kaputted on itself the next period.

Trading this market is tough, especially suicidal when one-directional bets are placed.

Nevertheless, it is timely to review the most crucial index, SPX, but reading the chart using a very long time frame. This way, I try to avoid being whipsawed in my opinion.

The annotations within suggest that SPX appear to be heading towards some major and long term support.

1st Support : 1172 region
2nd Support : 1110 region



SPX can continue to tank as it did yesterday, with a hefty 4.7% loss. Market internals was so bad, it "outperformed" Oct 19, 1987 when the losers outpaced winners by 16 to 1. Last night, NYSE and Nasdaq did a 20 to 1 decliners' volume /advancers' volume and with decliners/advancers at 19 to 1 !!! That's how much selling occured and it could have only been achieved with institutional selling; ie. even they cannot tahan anymore.

These very bad sentiments could really drive prices lower still and if that happens, and the 2nd support fails at 1110 region to hold up, no sane person should be looking at Longing the market without consulting a psychiatrist !

But having said that, a very Long Term view shows that SPX is still in the upward swing...I mean, looking back 20 years... and that's when these supports come into play.

Over time, one learns that Bulls will have their reasonings and Bears will have their arguments. Pointless exercise. Traders will form their own view after a healthy dosage on reality check. Put on a game plan, execute and manage risk and profits. That's how it was done successfully 80 years ago, and that's how it should be done now.

Therefore, position risks must be managed at all times, especially now, since equities markets are like pretty fickle young things... one moment hot, next moment cold. Dont put all your emotions in one basket and risk being permanently hurt :)

I would be very careful, at this juncture, not to take single directional bets; like Long or Short stock, Long or Short options.
Possible positions will be to take advantage of the HIGH VIX at this time, which stood at 31 as of 15sep's close. Some Short Volatility examples, could be Short Call Ratio Spreads (lower risks as one would not expect a big extended rally at this time) or Long Condor (giving a wider range of success with limited risk exposure) or even a Calendar Spread (unless u believe the volatility will last for a long time).

I wish all Huat Huat !!!

NDX - Looking Weak

Perhaps, like the Naz Comp, after having been a leading index for sometime, it's now time to be led by the other indexes...

DOW - Formation of The Morning Star

This could be a potential key reversal point for DOW to rally.

Nothing is for certain, it's all about probability. So far, in candle charting, the morning star formation is one of the strongest bullish indicators... the combination of the candles are shown within the chart below.

Might be an idea to lighten up on bearish positions in anticipation of a further rally.

4sept08 - DOW Technically Dismembered

DOW - Potential Morning Star Formation (A Reversal)

SPX, DJI and COMPQ indexes are registering the possibility of a key reversal candle pattern as of last Fri's closing bell.

However, it is equally important to note that the bearish signals are over-riding. The annotations within the chart suggest the various technical breakdown of DOW and the same can be said other 2 indexes.

Hence, the weekend govt announcement to "bail out" of Freddie Mac and Fannie Mae, which can cost treasury about usd100bil each, it is hardly good news. the only good news, is perhaps that more people are being saved from being thrown out onto the streets if their houses are foreclosed. Yet, this cannot mean that the financial turmoil has gone away. At the macro level, it's a redistribution of wealth; the rich subsidising the poor (and the foolish), if this bail outs are to be financed by taxations.

For us traders, we need to know what to do Monday when the bell sounds.

If I had buliish positions set up last week and did not sell out on the Thurs' massacre and again on Fri's bounce, I'd be wise to sell into this morning's rally; a gift !

If by the ending minutes of Monday's trade, we see a strong +ve closing; meaning recovering at least most of what was lost last thurs, then possibly we are seeing the formation of a key reversal candle pattern. The Morning Star. If this happens, it's never too late to re-enter those bullish positions again. Remember, preservation of capital/maintaining an acceptable loss is by far the single most important discipline for long term success.

So this morning, it's a rare chance to redeem a screwed up prior bullish position, be grateful instead of being greedy. Get out first and then reassess later on the trading day.

After getting out on a possible strong rally thanks to fred and fannie, and subsequently holding no position can only guarantee one result; ie. no trade, means no losses possible. Isn't that a nice proposition, until a clearer signal is confirmed for up or down.

Nazdaq100 - Supported at 1825

On 1st Sept, we speculated that NDX may correct a little more to the 1285 region...

Today, it behaved like clock work, reaching the support level and rebounded...there's hope for a upward push in the next sessions...

Nazdaq Composite - Appears Bullish in Short Term

2 conflicting signals...

With a longer outlook, a double bottom was clearly formed, giving rise to a technical view that, Nazdaq may have bottomed.

However, for short term trades, keep in mind several bearish technical signals. note that RSI @40 is in no man's land, making it useless at this juncture.

Thus, if one has no position, and insists on entering market, it appears that a short term bearish position could be more logical; eg Long Put Spread, Short Call Spread, Long Put Ratio Spread, or even a Long Put Tree.

I would avoid the flies and condors, which are more for volatility plays. and given erratic volatility; sometimes low and sometimes high, no point getting suckered on multiple commissions.

I feel that it mught be better to stay sidelined, as it is not exceptionally clear in which direction the market is headed towards...

Finally, accounting for the double bottom and a longer view, i am decidedly more bullish bias...as such, better to open Short Puts than Short Calls.

Good luck everyone...and best of luck !!!!

Bull Spread - Short Put Spread

Bull Spread

Short Put Spread

When to use : Neutral to Bullish Trend (this captures 2 out of 3 possible scenarios)
How to establish : Short a Put and Long a lower strike Put
Debit or Credit : Credit
Margin Requirement : Yes
What is the Maximum Profit : Amount of credit received (limitted)
What is the Maximum Loss : Amount between the 2 strike prices less credit received (limited)

Example :

GOOG is currently at $466.10 in early Sept
You expect GOOG to rally and have reasons to believe that it is well supported at $450, in the near term.
You choose options as it is too capital intensive to pay $46,610 for 100 shares of GOOG.

You could just simply sell a Sept 450Put option on GOOG and receive a premium(credit) for this sale. If GOOG's share price stays rather stable until option expiration, you benefit from time decay; ie you gain theta as time passes. If it rallies, then you profit from the decline in the Put's value.

But, you are worried that GOOG's shares price may suddenly drop drastically below $450, you will suffer (theoretically)unlimited losses. In fact, should GOOG's shares price ever drop catastrophically to $0, your losses will be equivalent to losing $450 per share. So, if you had sold just ONE contract of 450Put, your losses will be $45,000. This is no joking matter. But it would be a joke if GOOG shares become worthless.
Remember that one should not consider Short Put positions, if one is not prepared to purchase the stock at that Short strike price

Therefore, all naked short positions, whether Put or Call, and especially Short Call, can be HIGH risk trades. Traders must very closely monitor all naked (aka uncovered) Calls and Puts.

Hence, to mitigate the risk of a naked Put, you purchase a Sept 440 Put (just in case shit does hit the fan). The risk is mitigated because you will be insulated from further downside beyond $440. Your Long 440Put effectively serves as a "protective Put". This combination of Long and Short Puts, is known as a Short Put Spread.

This Short 450 Put position, obligates you buy GOOG at $450 and the Long 440 Put conveys you the right to sell it at $440. In return for this seemingly unfavourable trade, you receive a premium (equal to the amount of credit paid to you). In this example, the credit is 2.70. This credit compensates you for the risk involved in potentially buying high and selling low. Hence, a reward this risk assumed when you establish this Short Put Spread.

Position yields maximum profits when GOOG shares are at or above 450 at expiration, because this will render the all the Puts worthless. The maximum profit potential is the credit received; ie 2.70. The breakeven point for this trade, at expiration, is 447.30 (450 - 2.70). Hence, at expiration, if GOOG settles anything below 447.30, a loss will incur. The maximum losses is limited to 7.30 (450-440-2.70) because when GOOG trades below $450, you would be obligated to buy GOOG at $450 and have the right sell it at $440, a potential loss of $10. But, since you have already been credited $2.70 for this Short Put Spread, the maximum damage is reduced by this amount.

((an important note about Short Put Spreads : Consider that GOOG shares subsequently trades below $450 but higher than $440 anytime before and up to expiration date. You will very likely be assigned 100 shares for every ONE contract of 450Put option sold. This means, you will need to have $45,000 in your account or if your broker grants you some leverage, a smaller amount is still nevertheless required to buy this 100 shares of GOOG at $450/share.
If this happens, you will end up with LONG 100 GOOG shares and a Long 440Put option position. If GOOG rebounds without going below $440, then your Long 440Put will expire worthless. This makes sense because you will most certainly not want to exercise your right to sell GOOG at $440 when you can sell them in the open market for a higher value.

In other words, for all Short Put Spreads, there is always the chance that you will be assigned with shares you are obligated to buy at a higher strike price, yet you may not necessarily want to exercise your right to sell those shares at a lower strike price. Please understand this assignment risk very well))

Profit/Loss Explanation :

((you will just have to assume that these option premiums are accurate))
Credit (means you receive) for Short Sept 450 Put = 8.60
Debit (means you pay) for Long Sept 440 Put = -5.90

Total Credit = 2.70

Maximum loss = 7.30 (440 - 450 + 2.70)
Maximum Profit = 2.70
Breakeven point = 447.30 (450 - 2.70)
Profit Range = anything at and above 447.30

Risk/Reward Ratio = 6.30 / 2.70 = 2.7; ie you risk 2.7 for a profit potential of 1.00 (but remember, you win in 2 of 3 scenarios. in fact, you can still profit if shares drop slowly but stays above 447.30. hence making the probability of a successful trade in 3 out of 4 cases)

The profit and loss is illustrated using the chart below

Bull Spread - Long Call Spread

Bull Spread

Long Call Spread

When to use : Bullish Trend
How to establish : LONG a Call and SHORT a higher strike Call
Debit or Credit : Debit
Margin Requirement : No
What is the Maximum Profit : The distance between the LONG and SHORT Strikes (limitted)
What is the Maximum Loss : Amount paid (the debit) for the spread (limited)

Example :

RIMM is currently at $121.10 in early Sept
You expect RIMM to rally and have reasons to believe that it will have the potential to increase its share price to a maximum of $130, in the near term.
You then contemplate a bullish option position, since it is too capital intensive to pay $12,110 for 100 shares of RIMM.

You could just simply buy a Call option on RIMM, which will give you unlimited profit potential if RIMM price rallies extraordinarily. However, you are concerned about time decay on this position that is soon expiring. The current implied volatility is also high given a volatile market in the recent days. These 2 GREEKS will work against a simple Long Call position. Besides, it is also expensive to just buy a Call option.
Fyi, 1 contract of option is equal to right to trade 100 shares of the stock.

So, you decide to purchase a Sept 125 Call and sell a Sept 130 Call option spread. This is effectively, a Long Call Spread.

This Long Call Spread, gives you the right to buy RIMM at $125 and the potential to sell RIMM shares at $130, for which you pay a premium (equals to the amount of debit paid for this spread)

This position is similar to a Long Sep125 Call, but limits its upside profit potential when RIMM reaches $130. Consequently, for this reduced profit potential, you pay a smaller debit for this spread, and hence reduce your risk for this trade. Makes sense, since lower reward must be matched by a lower risk.
In this example, the premium(debit) of this spread is 1.50 (i shall only use unit rather than actual $ amount in all my examples)

Position yields maximum profits when RIMM shares are at or above 130 at expiration. The maximum profit potential is 130 - 125 net off debit paid. The breakeven point for this trade, at expiration, is 126.50 (125 + 1.50). Hence, at expiration, if RIMM settles anything below 126.50, a loss is experienced. The maximum losses will be limited to the premium of 1.50 paid and happens RIMM shares falls below 125 at expiration.

Profit/Loss Explanation :

(you will have to assume that these premiums are accurate)
Debit (means you pay) for Long Sept 120 Call = -3.30
Credit (means you receive) for Short Sept 130 Call = 1.80
Total Debit = 1.50

Maximum loss = 1.50
Maximum Profit = 3.50 ( 130 - 125 - 1.50)
Breakeven point = 126.50
Profit Range = anything at and above 126.50

Risk/Reward Ratio = 1.50 / 3.50 = 0.43; ie you risk 0.43 for a profit potential of 1.00

The profit and loss is illustrated using the chart below

Nazdaq100 - Forming a Triangle

and hopefully, by the time, NDX drops to 1825 level, RSI would be in the oversold area...then, more impetus for a bounce off that support line...