Neutral to Bearish Power Gauge rated Abercrombie & Finch $ANF closed down $2.33 today...well inside our sold options strangle positions and within the confines of the market maker's "expected move".   If we were to pay the commissions to close this trade at the end of Thursday's session...

BUY +10 STRANGLE ANF 100 (Weeklys) AUG5 14 50/39.5 CALL/PUT @.03 LMT

...the net gain from Wednesday's established position

SELL -10 STRANGLE ANF 100 (Weeklys) AUG5 14 50/39.5 CALL/PUT @.45 LMT 


...would be about .42 a contract or $420.


This trade worked out mostly because the implied volatility collapsed and the stock moved in the direction Chaikin Analytics predicted. That's the idea.  Sell overpriced junk to hedgers and speculators with a high probability of success and  profit.  Chaikin Analytics  boosts the trading edge further by providing consolidated insight about the company's fundamental and technical standing prior to earnings.  Based on a year's worth of earnings trades, the model gets it right about about 80% of the time.   Put the two together (Chaikin and the High Probability Option Selling Concept), and the expectancy is truly incredible.  There are certainly risks related to naked option trading, but the strategies can be deployed with risk defined options.  The win rate and profit are slightly reduced in favor of peace of mind and no nervous stomach.

Though we'll bear the risk of some calamitous market event and hold our trade open to let it expire worthless at the close tomorrow, our probabilities are 99+ percent that we'll take in another $425+ in profits to add to our Chaikin Analytics powered speculative earnings cash stack from this season.   I officially paid for my Thanksgiving cruise with this  final admittedly risky, but winning strategy.    This was my play money at risk, not money I need for bills or retirement. 

Two more speculative earnings trade opportunities I'm going to  look at in next couple of weeks

1. Up-Channeling $JOY brings its neutral Power Gauge to the earnings plate on 09/03
2. Bearish retailer $LULU on 09/11.  That one had a violent price reaction last cycle, so implied volatility is likely to be in the hundreds before that announcement.

My trading partner, AA, has profited from risk defined speculative earnings trades as well, though he's had difficulty buying back his multi-leg positions when he made a trade too close to expiration. Hopefully, he'll recap his summer earnings experience battling market makers here on the Power User blog.

Commissions and bid-ask spreads of multi leg option trades are another reason I prefer to trade naked, but not everyone has the account size, buying power or the experience to run with this strategy.  Which is why we manage so many different stock and options portfolios to demonstrate Chaikin Analytics true power.    

Yesterday, we placed a speculative options trade ahead of today's ANF earnings announcement. Wanted to share the trade ahead of the news. 

SOLD -10 STRANGLE ANF 100 (Weeklys) AUG5 14 50/39.5 CALL/PUT @.45

Hopefully, this will allow us to brag about how we made $450 in 24 hours with the help of Chaikin Analytics. LOL.  

Earning trades are mostly about selling speculators and hedgers overpriced options ahead of big news like earnings announcements.  Chaikin Analytics helps us make a directional or neutral bet based on what the Power Gauge tells us.  Its metrics help us weigh insider, short seller and analyst sentiment ahead of the news and we can quickly assess company valuations and management's past earnings track record quickly too,  Plus, we have the technical evidence that points to how institutions are trading into earnings.  Chaikin Analytics Power Gauge is like having your own private analyst and prop trading desk right down the hall from your office. 

The intel is that ANF carries neutral to downside risk into earnings  So we've structured a trade that will pay us even if the stock makes a larger than expected move.  Price would have to fall $5 to the downside or explode $6 to the upside for us to be losers.  Normally, selling options 2 days ahead of expiration at these distant strikes would pay us a nickel if we were lucky.  But ahead of earnings news and with over 100% implied volatility, the options are priced for a substantial move of close to $3 one way or the other, but within an expected range of about $3.  

Trading naked options isn't for everyone, and it involves theoretically unlimited risk.  But even if the stock were to move 2 standard deviations to the up or downside (5% chance of that statistically), we'd still earn a penny or more on the trade.  The greater risk in holding naked options would involve geopolitical news or stock mark crushing news of some sort, so really no more/less than holding stocks it would seems to us.  We just keep our position size reasonable.  Lots of little high probability bets diversified over time and price is how to make money with options selling strategies. Let's see how we do on this trade. 

Today, we made a discretionary adjustment to our Chaikin Power User long stock portfolio.  We took double digit profits on still Very Bullish rated but nearing overbought EMC corporation. (Report card on closed trades here ) There were no sell signals according to our rules on this strong Computer Software and Services Industry Group performer, and the longer-term buy-and-hold investor would likely avoid making the move we made for tax reasons alone.  However, with our investment time horizon of 3 - 6 months (matching what's optimal for the Chaikin Analytics model) and a 10.29% win racked up in just over 2 months, we choose to avoid riding out a possible pullback when we see a better opportunity in the space.    See all of our current positions here. 

$EMC's Overbought / Oversold oscillator appears to have rolled over, marking a lower high while price hits a higher high.    We swapped into $SYMC on a Money Flow BUY signal.   $SYMC also has a Very Bullish PG ratting, with strong industry and strong technicals. Relative strength recently turned convincingly positive, and price broke above the long term Chaikin Trend while under decent accumulation (read as recent "sea of green" on Money Flow indicator).  Unlike $EMC, this name is currently in oversold territory, has strong insider buying and minimal short interest.  

We think  $SYMC has some room to the upside... and there's nothing wrong with locking in a 10% gain in $EMC.  Besides, our Chaikin Power User Portfolio has thinned as we've raised our stops in the face of weakening intermediate term trends in now former holdings. Our portfolio is a bit tech heavy as a result, and that make sense considering it's one of only a couple of sectors showing bullishness relative to the market.  Even this swap does nothing to address that issue.  We'll continue to look for bullish trades in other Industry Groups showing strength provided market conditions remain bullish on the intermediate term. 

These are the kind of moves we could never make without Chaikin Analytics putting the wind at our back.    With the most important fundamental and technical information not only at our finger tips but also what's driving institutional trading decisions,  we make subtile adjustments with conviction and in the hopes of maximizing returns.  Hoping is NO fool's errand here: while the market was up some 30 points last year,  a basket of Very Bullish Power Gauge rated stocks were up 50% more.  And 2013 is no fluke, Chaikin Analytics has crushed the market since launching in 2011 and in a decade of independent backtesting prior to that.  Join us as Chaikin Power Users and get Chaikin Analytics for super attractive discount.   The deals last until September 3oth. 

Every Sunday, we analyze ETF's using Chaikin Analytics to assess market conditions for the trading week ahead. 

The five indicators that define a bullish market posture and are best suited for Chaikin Analytics' 3 - 6 month time horizon for trading stocks have turned green, though the market at present is overbought.  We'd look for a shallow 2 - 5 day pullback, supported by the Overbought/Oversold Oscillator, to enter VERY BULLISH Power Gauge rated stock trades.. 

Our portfolio has thinned in recent weeks as stock positions we put on earlier this year have hit trailing stop losses at (mostly) profitable levels (closed trades here). Rather than worry about the market running "too far too fast" and concerning ourselves with the inevitable pullback that's coming, we'll continue to put on positions according to our rules and  manage risk by setting stops, diversifying portfolio positions across strong sectors and industry groups, and  limiting our trading to a maximum of  15 - 20 positions that carry no greater than 10% drawdown risk in aggregate.    Of the 7 positions remaining in our portfolio, stop losses are higher than our entry prices in 3 cases, with a dollar or less risk remaining on the other 4.  


We are underinvested at present and plan on taking trades that make sense according to our rules.   But we won't force things. Our investing rules may be the very thing that's limiting our risk and forewarning of a market pullback.    These rules keep the emotions out of our trading and encourage us to attempt to be fully invested despite our fears of a market pullback.  

Other observations from this week's market analysis: 

International Equity Markets and Commodities  are UNDER-PERFORMING the S&P.    Emerging Markets and US Treasuries are out-performing US Stocks.   

While US stocks appear to be the place to be, recent bond performance makes us cautious.  Why would Big Money bid up an asset that offers very little probability of significant growth and no yield.  What do institutional traders know?

Finally, here's the ETF porfolio.  Our goal is simply to outpeform the benchmark All Countries World Index (ACWI) trading ETF's bullishly on Relative Strength Breakout and Buy signals.  Our rules for entry and exit are here. 

Follow-up to yesterday's blog entry: Those out of the money naked call options I sold into Autodesk's earnings  expired worthless yesterday. I kept the credit of $50 per contract I received on Thursday after selling 6 September $60 strike calls. Total profit: $300 minus commission for entering the trade.  

While selling naked options is the riskiest of all possible trades in theory, I had the wind at my back in many ways.  The odds of my success were over 95% based on the close to $4 (2 standard deviation) price gain ADSK would have had to make to arrive at my short strike.  High implied volatility inflated the option prices into the earnings announcement, so the return relative to risk was high (Even if the stock had made greater than a 2 standard deviation move , the resulting loss would have only been about $200). Finally, Chaikin Analytics gave me added conviction that I was on the right side of the trade. ADSK's high price to sales and high price to book ratios, industry group weakness and negative money flow were "tells". 

Next week, we'll try to ring the register on a few more "fast money" earnings trades.  Any time someone wants to overpay for an option where the probabilities are stacked against the buyer to begin with and Chaikin Analytics gives me an added edge, I will gladly assume the risk and the sell the speculator the dream.  

Following up on yesterday's post, Marc Chaikin' stock pick from his weekly Insights newsletter is up over 4 percent in midday trading today after positive earnings news.  Had you simply entered long before the close yesterday or traded a more complex multi leg option strategy designed to profit from both a directional move and a collapse of implied volatility, your wallet is a little fatter today.   I sold an out of the money naked put.  Here is my round trip trade record. 

• On Tuesday 08/12, I sold 20 put contracts for $32 each: SOLD -20 NTAP 100 AUG 14 37.5 PUT @.32
• Today I bought back the sold puts for $3 per contract: BOT +20 NTAP 100 AUG 14 37.5 PUT @.03
• Net Profit $29 per contract - $580*

*I paid commissions too

One More Earnings Trade This Week

Neutral rated Autodesk has negative potential and is in a weak industry group.  Valuations (price to sales, price to book) make the bar for significantly further price appreciation high.  I'm taking advantage of high implied volatility and selling a naked $60 call option into earnings.  The options market is pricing a $3.50 move after the earnings announcement, so with expiration tomorrow, I feel ok about the risk of of selling uncovered option.  Even a 2 standard deviation move is well below by per-trade risk tolerance.   I'll report back tomorrow.   Here is the trade I took: SOLD -6 ADSK 100 AUG 14 60 CALL @.50 AMEX

Chaikin Analytics is designed to give dedicated investors like us a methodical process for earning returns much higher than market averages, but without introducing additionalk added to do it.  It's a systematic grind higher with the occasional portfolio draw down when the market corrects, sells off or recedes.

 It's amazing to see how quickly the money piles up.  Because we're so focused on the process and not the end result.   Doesn't the account statement  sort of catch you by surprise when it rolls in each month?        

This week, I'm going to put Chaikin Analytics to work on a completely different trading strategy: the pursuit of short tern speculative gains through a marketing moving earnings announcement. This is fast money.  But,  I'm taking advantage of the fact that we have one of the all time great institutional analysts advising us, Marc Chaikin!  Every week, he gives subscribers his Bullish / Bearish pick of the week.  I don't blog about these often, because Marc's picks are for paying subscribers.  I get a lot of feedback from subcribers that gains from these types of trades are used to pay for the cost of Chaikin Analytics. 
 
 These are carefully researched stock picks poised to make a big move.  His years of experience looking under the hood for large institutions and the predictive Mojo of the Power Gauge combine to give us the potential to generate deep pocket money.  Anything can happen with one trade, but over time, The Bullish/Bearish Stock of the Week strategy has paid off handsomely.  We'll try it here in real time with my real money.  Earnings are Wednesday after bell. We'll get into the trade just before the close.  Stay tuned. 

This type of trading is SPECULATIVE and for me it accounts for a small fraction of the money I have at risk in the markets.  We'll be very focused on what we could lose on NTAP's earnings move.

Despite Friday's 22 point rally in the S&P's, the index price is still well below its long term Chaikin trendline, while its Bull/Bear ratio continues to slither under one (and only 79 Bullish stocks).  Price action in most countries around the world is not encouraging and a slowdown in economic activity see s confirmed by The Shipping Dry Bulk Index (SEA) ETF's measured decline. Contraband must be supporting shipping day rates, because these ships ain't bein' kept afloat by the worldwide economy

What's tradeable?

•  We appear to have found our way to a significant SPY support level  amidst very oversold market conditions at around 1900.  With Friday's bounce in stocks,  I imagine we'll see a bit of snap back rally, but I'm  not feeling it...the pull of  Risk-On-O-Mania.  Are you?
• IF EEM holds $43.25, then $45 is the bag.  The stock has gone sideways since its mid July Relative Strength Breakout signal.  But the metrics that usually support the continuation of trend are in place: Chaikin trendline, money flow and relative strength. 
• I could see this aggressive bull put spread on Goldman Sacs.   Price target: $177

Our rules sill  keep us from initiating multi-month trend trades for the foreseeable future, but  we'll have no problem  safely snuggling up to some higher probability, risk defined  options spread trades on any day that Implied Vol pops.  Meanwhile, we lie in wait for a market failure at key resistance, with our finger on the E-mini futures sell button.  Be ready pounce on on lousy stocks. Grab the offer code for a $30 monthly subscription savings and $300 first year annual savings