Addicted to X

I am hearing a buzz about adding or taking a new entry on X. It looks pretty low-risk to me... although that recent M&A activity has left the options over valued and under appreciated.

I drew a faint trendline to try and show the equilibrium for option premiums over the last year. This is why you see historical and implied volatility both pegged at 40%.

What does this mean? If the market continues to discount a potential merger, you could likely see a decrease in implied volatility. If you are going to be an option buyer, go easy on the vega.

Recommendation: Go X yourself.

Long: X, but a reduced position.

Short: vega

Hey Jeff - just curious if you were hosting MT tonight?


I think Jeff is off tonight but I have a hard time keeping track. I normally never miss the MT and was out for the last two Jeff did. I did get 45 minutes of last week on the recording. Jeff and Brett thanks for reading my mind with X. Vega...why I do I never look at Vega?
Pam got into NOV today and it did great! Too bad it was just paper. She is out performing me again! Just so you know I think it was those puts I bought this morning (limit orders last night) that turned the bulls loose, certain to work everytime. Well that and Brett's WMs. Bob R. were do you come up with that poetry, amazing! Jeff you sure have a talented community here. Oh and I told you Tim was magic with technology.

I trade all day so I have too much time on my hands!!!


Why do you say "AMG is a beautiful entry, in my opinion."?

At this point, it seems like a good entry would need to be a breakout.

I was in, sold a couple of days ago and am waiting on a re-entry, although I must not be seeing what you were? Is that anticipatory?

By the way if chowing down a burrito today had an impact on the market...can you do that more often! Thanks.

Bob Raimo, As always, you are the Pro with the Prose! Did you ever consider teaching that...? JK and you other Full-time traders can teach us to trade and you can teach us to how to sing like the birds, okay...well at least sound good on paper! Thanks as always.


You say, "go easy on the vega". Is this something we have any control of? I mean, the vega is there and we can buy into it ...or not. Is there a vega secret as to how to select a different option to do what you want that has less vega? I thought vega was fairly uniform throughout all the strike prices.

Doji Girl,
Vega is, by definition, the amount an option will change for every 1% change in volatility. For example, if a random call option is going for $4.50 and has a vega of 0.30, then for every 1% that IV increases, the value of that option will also increase by 0.30. In this example, it would be worth $4.80 after IV increases by 1%.

Not all options have similar vega, though. The deeper in-the-money an option gets and the closer it is to expiration, the further vega decreases. If you look at the June calls for X, you’ll see that strikes 80 through 105 have zero vega and zero IV. Why? Because they’re virtually 100% intrinsic value and expiration is two days away. July calls 50 through 75 also have zero vega. As July’s options approach maturity, you’ll see the vega of those options that are DITM (deep in-the-money) approach zero also. To illustrate this, compare the veag of the JUN 90 to the JUL 90 to the OCT 90. June’s vega is zero, July’s is 0.03 and October’s is 0.15.

So, I believe what Jeff is saying is that if you’re looking to take a new long position in X, “go light” on vega – or go slightly deeper in the money (and possibly consider the shorter-term options rather than the longer ones) so that you reduce the affect of a potential decline in IV.

Hope this helps.

Given these market conditions, if we’re bullish on a stock but the options are overpriced (even more so than X), is it worth considering writing puts to still take advantage of the underlying’s upward movement and decline in IV? I know that I risk being ostracized from the blog for suggesting this, but you broached the topic on last week’s marketcast so I figured I get a freebee.


Chip - It's a trendline support bounce.

Doji - I think what jeff's saying is be careful with your options. Vega is how sensitive an option is to a change in implied volatility. In this case, a deeper in-the-money option would have a lower vega than an ATM or OTM one, so a nasty drop in IV wouldn't hurt as bad.


Thanks, although I still don't see a trendline bounce looking at either the last 4 days or the last few months.

Maybe my eyes...I think I'll be more comfortable waiting for a little more conviction...I know a bounce doesn't require volume...although seems pretty weak for the moment.

It was a big winner and would love to ride again.

Dave, I agree with you that selling put verticals might be a good way to play X at this point. I have been trying out that strategy during these choppy times anyway and on something with inflated IV, it seems to make even more sense.

Jeff and Addicts,

When, if ever, is a close above the head-n-shoulders neckline (e.g., PAY) a good entry?

Does a close above the neckline generally indicate a failed pattern?

Mike, a definitive close above a neckline would signify a failed pattern. Remember the neckline is a range. PAY is definitely close to breaking point depending on where your line is drawn. If I didn’t get bounced with my mechanical stop intra day, I would have exited at the end of the day and saved some money. A new entry point for me is close if it decides to drop.

Everyone, if it isn’t already on your radar, check out LEAP. It is ready to do just that as it coils deeper in its symmetrical triangle.

If you're getting skittish on PAY, draw a trendline from the tops in early may and use that as an exit.

Chip, you really don't see the trendline on AMG? I'll email it you.

Goodmorning! Thanks for the info on X. Bob the plot has thickened on the purchase of the CBOT. NMX (Nymex Holdings) has thrown their hat in the ring. Looking at the trend and it might break out of its channel. WDYT?


Here is my perspective.

*Trend is higher highs and higher lows.
*Some horizontal support at $125
*Diagonal support, sitting right on trendline.
*when it broke $125 on 5/25, it did so on huge volume.
*pre-market this morning has it opening lower, futures are up, so for me, an excellent low risk entry

That all being said, here is the real reason this is a good low risk trade. If Brett takes the trade, and I think he did, you can bet he'll be throwing down a buritto later today. Based on Bretts past buritto performance, how can you lose!!!


I see potential resistance at $137 area, suppport at $125. I would not take this trade simply because I like to make my entrys close to a support or resistance area. If this is a flagpole, I'd wait to see the pattern complete and trade the flag breakout, or a support bounce. And looking at the pre-market, it is up another $3.00. I dont think this trade is a good risk reward.

Thanks for the input I have a wait and see outlook as well. GS & $TNX not fairing well pre mkt!


I have to go to Cheesecake Factory today, so I can't get CMG. I did have a WM this morning, but they ruined it, so that's not a very good indicator.

As for AMG, i'm in it more than once.

Dave & Brett,

Thanks for the lesson on vega. While I knew what vega is and how it affects an option price, I did not know that ITMs were the way to go to mitigate the effects. (I wonder why in all the trading rooms I've sat through, this was never mentioned).

Bob Raimo,

Thanks for the AMG perspective. I was in for the earlier breakout and enjoyed it.

Now that Brett has confirmed his WM was not as good as usual...I guess we'll have to see if the Cheesecake Factory is able to produce any results in lieu of a burrito!

Left to go boating about 11 AM (central) yesterday and had roughly 293 posts to catch up on....excellent stuff, please keep it up

Bad WM
eat some cheeseacake
at the factory


Patience is rewarded.

Very nice Brett! Congrats on ISIL.


Bought some GS at 226.20 a little excitement for the day

Brett said X to $120....

And beyond...

Brett, Bob, Chip, Optionfanatic, others,

I hear Jeff say all the time that he much prefers to enter trades in the last hour of the day, yet I see you guys on here pre-market quite often. What brings you all to the market so early? Just watching? Is it in defense in case things head south? Or are do you actively take trades in the morning too?

I'm still early in my learning curve, so I am entering late in the day because there is less volatility, but I saw some very tempting setups this morning (X, AMG)that as of now, I wish I had gotten in on.

Your opinions? Thanks for everything you all share.

And thanks to Jeff.



I greenlight bounce trades anytime. Breakouts should wait until day's end.


If you don't know you better axe somebody.

(i've been touting this stock for what feels like 6 months).

Thanks, Brett. I'll observe that in my studies going forward to see if would fit my style as well.

And Jeff, I don't mean to put words in your mouth about when you enter (or exit) trades. I realized my post kind of sounded like that. It may have been a case of selective hearing on my part. Please correct me at any time.



A little clarification on the intra day entry for the bounce trade. Am I right in understanding that on a bounce trade that you have been waiting to get into you will enter intra day if it hits the support/resistance? But if by the end of the day it closes above the resistance or below the support do you exit before the close?

Also can you give some ideas on how to manage watch lists efficiently? I know I have to come up with my own system but it would help to hear how you do this so I can have a starting point. I have tried and haven't found a good way to do this yet.




When looking at ThinkorSwim on their monitor page the VEGA is listed very differently then on Investools when you look at the option greeks. On the ThinkorSwim website you can watch the VEGA change all day. For example, POT keeps moving higher today. I know that's because of the stock movement. My understanding of option greeks is as if I'm listening to a foreign language and I'm getting the just of what people are saying but not completely.

If you're already in a position and have been for awhile (I know that's a relative term)... knowing that the option prices have become bloated does that mean you want to now watch VEGA more closely so that the current positions you're holding don't deflate in value?

I'm not sure I'm even asking the right question on this. For example, I already have a position in X. And even in POT the VEGA is listed pretty high on the ThinkorSwim monitor page but I also have a very high delta.

See what I mean, it's a bit roundabout but it's because I'm not really sure if I'm asking the right question. So, if you can decipher this for me I would be greatful.


How I manage watchlists is pretty simple. I keep them on INVESTools' site organized by sector. Then, i take the hot trades and put them into a watchlist on Thinkorswim.

Hans, I,m learning to properly trade just like everyone, But after many yrs. of trading stocks,options, I have bad habits that are hard to break. I apologize if I sounded like a hypocrite. And some of my trading is just plain ignorance.Ps I did make 100.00 on the fade. But I,m down much more for holding over earnings. But history does show the stock does rebound after earnings, I will sit and see what happens. Thanks for calling me on that one I needed it!


Thanks for the watch list info.

Was I right about how you approach the intra day entry for the bounce trades? Enter when it hits the support but exit the same day if it closes below



That's really open to your own interpretation. I like to see a bounce off a trendline with some additional confirmation from volume and/or oscillators. I get pretty aggressive with bounce trades, especially with multiple touches of support.


That's way more efficient than what I'm doing right now with my watchlists. I think I like your idea better. It seems more organized and I happen to like organized. Thanks for the idea.


MSM, Unsure if talked about here before, if so sorry, but I mentioned this here Tuesday, on 2 yr chart seeing Cup & handle. Plus nice uptrend since March.
What say the rest of you?

Good morning,
It's been a very long 2 days of travelling all accross this country of mine and I have ended up in Newfoundland where, it turns out, they have the slowest internet connections IN THE WORLD!! It has taken me an hour to catch up on the blog, and some of the trades mentioned. Brett, I love the look of AMG, and there's a couple of others that bear watching today.

Is anyone else still in PENN? I got in a couple of months ago and didn't buy enough time. I have July options and it's right back at a great support area. Might take my $100 of profits off the table and re-enter. I can't remember who it was that asked about this sort of thing a few strands back, but to me this would be a perfect time to get rid of a "one-month-out" contract and get some more time.

I'll try to post some more today if this connection will stick around long enough. It keeps cutting out on me.

I am being rewarded for sticking with my trades, through last week's butt kicking. I'm now back to where I was and have some really good trades on the table. Except for GS, of course. Held one contract over earnings and POOF!! there goes virtually all the profits on that one. Oh well.

Man... if I'd known I'd be this thirsty this morning, I'd have had more to drink last night. Has anyone seen my head? It seems to be missing in action.


I think you left your head in the lobby last night. You might want to check there. ;-)

I know I keep mentioning this at least once a day on the blog but...I don't know what I'm going to do when I'm stuck with dial up for 10 days! At least you only have to deal with the slowest connection for a very short while. I'm sure there has to be some hotspots in Lloyminster but nothing comes up on the many hotspot registries I've checked out. Guess where the closest hotspots are? Edmonton, 2 1/2 hours away. Aaaghhh!


Finally created a blog. welcome to the (what century is this) Ladd

JCOM is making a very nice bounce today!

Hans, watching the pre-market gives you an idea of where the market and individual stocks are headed, which can help you depending on how much you can watch what's going on during the day and be prepared to act. Of course you can never know for sure until things open, news, etc.

My experience has taught me that getting in first thing is not the best time, as the volatility is usually high and lots of action (which can be a good thing). Sometimes letting things settle down after the first 30 - 60 minutes is what I try to do, although not always. You can see this in part by looking at a daily chart of any stock that makes good moves, e.g., X, AMG, DECK and others.

Brett makes some good points about bounces vs. breakouts.

Chris, good to have you back!

liz, you could always look into getting a broadband card for your laptop, although you'd have to sign up for that service. I don't know if they are supported in Canada, Sprint and Verizon have them.

Liz, you have to think about VEGA as relative to the price of the option itself. If you have an option that's $2000 per contract and a vega of 20, that's very different from an option that's $200 per contract with a vega of 20.

Personally, I don't find it very useful to look at the actual Vega number because of this. It's hard to look at it and say quickly whether that's a high or low Vega. Instead, I look at the Delta (or just how deep in or out of the money the option is), which tells me if time value is even a factor, and then look at the average IV on the prophet charts to see if IV is high on the stock I'm trading.

If you're already in something like X and IV shoots up and if you are out of the money or around the money, then you just need to put that in your mind as a factor that can affect the price. You could exit and take the profit on the increase in IV or stay in and realize that IV might go back down. If you are deep in the money, time value isn't a factor so no big deal.

But, if you still think the stock is going to trend up, then Delta will keep going up and IV becomes less important. Price most often trumps IV if you are right on the trend.

If there's a Starbucks in Lloydminister they usually have a hotspot (and I ain't referring to the coffee warming device) I just spent 10 minutes pulling up the chart on DRYS. I think it's pulling back up, but so far just the numbers are up... no chart yet. OSG is making a great bounce today off of diagonal support.

Hmmm OSG, AMG, CMG... all doing well today. Note to self... check all stocks ending in "G."

Well, 15 minutes and still no graph for DRYS. This sucks. But my portfolio profits are slipping away, is the market turning south?


That helps a lot.


Hey Chip,
I saw something on yesterday's strand that you said, and I wanted to respond to it, but I can't remember what it was (Can't seem to remember much this morning. Hmmm must have something to do with the whole "Head M.I.A." thing.) This connection is so slow that I can't go back and look through it all. I'll have to do that tomorrow when I get home.

PCU's making more money today.

Has anyone been in MLM options? I've got it in my 401k so didn't get any options, but look at it go!!! Chip, you should like them. Seems to me they supply lots of stuff to your employer.

CLWR. broke on announcement of partnership w/ direct Tv and echostar


Consider vega when you select your option. Nothing more, nothing less. It doesn't do anything for you after you are in the trade.


I don't think a failed pattern is enough for me to take the opposite side of the trade I was planning. A failed pattern should be considered broken, and another stock should be selected in my opinion. The trade becomes too complicated most of the time and hard to manage.

SYNL break of pennant (symm tr)

man, SYNL no options


I looked into broadband cards, etc. I'm just not willing to sign a 2 year contract for a trip that's going to last 10 days. I don't travel enough yet for that to be a necessity. But actually where they live I would also need to have a smart phone in conjunction with the broadband card because you still have to have wireless networking around you, like a hotspot and they don't have it. They live out in the middle of almost nowhere. The smart phone would have to act as my connection to the internet. I'm mostly just bitching. I'm going to be with my mother-in-law for 10 days. It's just one more less positive aspect of the trip. ;-) Thank you!


Thanks for the input. I understand option greeks but I don't completely so I appreciate more insight. You explained what I was so poorly trying to ask.



Thanks! That explains even more of the puzzle for me. ;-)



Thanks for the insight on a Starbucks in Lloydminster. That will be very helpful.

Look at STR go!!!
(at least at this moment!)


the sectors have always been a confusion for me. do you maintain a sector list based on the 9 main sectors of the market like energy, materials, utilities, technology, healthcare, consumer staples, consumer discretionary, financials and industrials.

like xle, xlb, xlu, xlk, xlv, xlp, xly, xlf, xli

or do you maintain a list with breakout in each of the above sector like house, oil services, techo-software etc.


I just start generally and when i fill up the 150 allotted by INVESTools, i subdivide those. Pretty basic, huh?

so brett,
this is a sound off and solicitation for feedback.

What I have done is build a watch list based on sectors so I can watch how each of the sectors are doing. The list is the min 9 sectors.

I then have a watch list for each sector i-e i have all the holdings for the index of the sector (i found that from site).

So as I see sector bouncing or breaking out. I look for stocks that are follwing the sector lead and play them.

Am I in the right track?

Any feedback and comments would be welcome.

Thanks brett and other addicts.


Brett, Chip, Optionfanatic,

Thanks for your replies about watching pre-market action. Much appreciated.


I use a book and a pencil. This allows me to lose track of good potential trades and blame Costanza, the Zen Trader, or whoever else comes to mind. You won't get anywhere, but you will be at peace with the Universe.

Incidentally, because the Master brought it up, if anyone's interested in Bull Put Spreads (and other nonsense) have a look at ABX. This thing never breaks below $27.50 and rarely stays below $30 for long. A July Bull Put Spread on this is very, very low risk and has good potential rewards. And it's cash in your account.

Hey guys,

I have some great feedback about orgainzing watchlists...


Because you are the "Option Addict Master" and we are but the "Grasshopper"...Master!


Don't know how much farther it has to run (down) but I throw it out for your perusal. Especially you, Liz, if you're going to "use" them in Lloydwhosits, and throw them away like the cheap, cardboard cups that they are.


Brett, I think they need a jump-start. Go to it, man. I see a "blowing in the breeze, chinese-style flag/dragon" breakout in the making.

Look it up, if you don't believe me.


I was wondering about the same thing a while back (concerning the sectors and watchlists, etc.) so I have a quick question for you: Are you an Investools Student? If so, you can easily just use the 'Market Posture' section under the 'Strategies' tab. Look at all the thumbnails there for any sectors or markets that you see are bouncing (or whatever) - and then, on the same page, click on the links in the upper right to see all the stocks in that Market or Sector. Quite easy. If your feeling ambitious you can even make a watchlist with all the stocks in that sector and put them all on your Interactive Chart. Wa-la!

I did that a while back and it took forever, but well worth it. I hope this helps. If this doesnt make sense it is because I cant explain anything worth a crap. See ya dude.



Is that like an iron mothra?


Liz, personally I played an iron chicken once, and the suspense killed me. Played it on MA while it was trending sideways and made a few bucks off it, but if it'd shot up like it did a bit later, I'd have been dead.

Susan in Manhattan, are you there? Your question on Mastertalk last night makes me think you may have read my expose on Jeff's Angry Trader monacher. If you're reading this I've got a question on your cool setup. The more I think about it the more I'd love to have 4 screens running at once. How did you make it so that each screen has a different window on it? I wannit and I wannit bad.

This might be more of a long term trade, but have a look at JRCC. Coal is going to be huge soon, as I just read an article that a scientist in the US (and analysed and documented by a leading Canadian scientist, too) has discovered how to burn coal in a very high pressure furnace and produce no (aka: zero) emissions. Aparantly all the emissions are turned in to a solid waste which is non-toxic... non-anything and can simply be disposed of. No CO2, no nothing, just clean air comes out the chimney (so who needs a chimney then? Just think of all the chimney sweeps that will be put out of business. This could be a DISASTER!!)

Anyway, JRCC is at a great entry point right now. Worth a look, even without the story on zero emissions.

I believe the question that Susan from Manhattan asked last night on MasterTalk about you throwing sandwiches, was in reference to a comment I made a couple of days ago about finding a posting through Googling "Angry Trader" The name was given to a trader on the floor of the Dow who one day threw his sandwich at another trader on the floor.

Personally I prefer Zen Trader. Sounds like some sort of personal transportation device that Harrison Ford would ride.


This is mostly for you since I know your connection is super slow today... there's a new thread on the blog.

I want Susan's set up too!


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About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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