I am loving this market volatility. As long as you are short realty/housing and long oil, get ready to retire.

I am swamped with projects, hence the lack of substance today. When the market swings are wild, I am normally glued to my screen.

PS- Remember AHM from two months ago? I bring it up only because the stock is a lot closer to zero after today. Percentage wise, that is the greatest trade ever recommended on this blog (applause). This stock has nearly lost 100% of it's value when we talked about shorting it at $22. Whatever you do, don't ask me if you should take profits now.

Recommendation: Quote of the day: "Technical analysis is an excellent approach towards becoming homeless." - The Fly

Long: Oil

Short: Owning a house... or two.

I am going to have Randy Watson ring the closing bell... give him a round of applause...

Posted by Option Addict at 12:33 PM | Permalink | Comments

The question came up last week about why I have such a complex trading VIX options. For the most part, I haven't spoken with anyone who has had a great experience in trading them. I am going to assume that the majority understands the VIX, or has at least read my VIX article on Forbes some time ago.

There are a few reasons I refuse trade them. These are my own opinions, based off my own experiences. If you choose to read them, you may be influenced by my opinions and it may cost you money.

Reason #1: No Opportunities.

With the exception of about a half dozen rallies or retracements over the last year, opportunities involving substantial moves in the VIX are few and far between. Normally I like to follow the momo stocks, and I happen to be shorter term in the duration of my trades, but the VIX wouldn't qualify as "momo" to me, barring a few exceptions. However if you are longer term oriented, the percentage swings are amazing. If you can look out that far.

Reason #2: Implied Volatility on Implied Volatility

What? Due to the fact that the VIX is a measurement of implied volatility, I would have figured that the markup on these wouldn't have been too bad...initially. Check out the range of implied volatility on my chart below...

That's right. A scale of 105-55. Want to know why? Historical volatility. The index has a wild history. Since 1993 (which samples the end of the 90's bull market, the collapse, and our current bull market) The VIX has a price range as high as the low 50's and as low as 10. That is quite a range for such a low priced index. However, no matter how you cut it, the one amazing constant of this index is the historical volatility, which averages 80%. With historical volatility being that high, these will be priced not too far off these historical values. In fact, 80 falls right in the middle of that range (55-105).

As you know, implied volatility that high really pumps the price of those near money contracts. Here is a look at the September paper, VIX trading at 22.81.The calls are trading at 1.40 x 1.60, which isn't devastating if you are expecting a few points of upside. Take a look at the puts. 4.20 x 4.60! That's more like it. These options are priced as if the VIX is going to get crushed, and then some. Problem is that if you hit that ask, you would need more that a crash in the VIX to make money.

Reason #3: Cash Settled

You can't exercise these options. If I could, I would. Take a look at this...

Imagine you bought some of these overpriced calls before the rally in the VIX. With all the intrinsic value you just picked up, you ought to be ready to cash in on some big bucks, right? Wrong. Compare the intrinsic value to the bid. The deeper in the money you get, the further away the bid gets from intrinsic value. Take the 18's for example (August paper). This contract should be worth $4.81 (intrinsic) but it is selling for 2.85! Since these are cash settles, and the market knows you cannot exercise, you are f____! You can imagine what you would have paid for them in front of that rally, or if you can't pull some historical quotes. It will leave you very unsatisfied.

Reason #4: Forward Pricing

The reason that prices don't seem to move at the rate of the underlying index (until you are close to expiration) is due to the fact that the market uses pricing on the VIX futures to get a forward value of the index.

PS- They expire on Wednesdays, not Fridays. Just to be complicated.

Recommendation: Come to your own conclusion if you wish, but I'd take my word for it.

Long: Opinions

Short: VIX options

Posted by Option Addict at 8:40 AM | Permalink | Comments

Normally I try to stay miles from the computer over the weekend, but these photos appeared in my inbox, and I had to post them before the Monday morning mayhem. Take a look...

Brett and the Boys! Awesome!

Brett showing us where the magic happens...Recommendation: Send em if you got em!

Long: Photos

Short: Monday

Posted by Option Addict at 2:23 PM | Permalink | Comments

We are drawing near to the close of a long week. I imagine that most of you are looking forward to this as much as I am. The market seems reluctant to post gains, and that is fine by me. I am just pissed to see all these reporters at CNBC getting any credit for finally getting a pullback in this market after calling the top for over the last year. Do you find it as hard as I do to get financial commentary from reporters as opposed to traders?

Posted by Option Addict at 12:32 PM | Permalink | Comments

The market moves over 2%. Was it a direction that made you money? Check out the action on the VIX today. We tackled some pretty significant territory during the day, but check out what we have done on the longer term chart....

Take a look at the significance of the action we saw in the VIX on the longer term chart. Notice how we are rapidly approaching a historical mean. A break into the mid 20's here makes this a whole new ball game. This is my reasoning for moving into more spread trades. Even though I am not totally fond of the strategy, the market is pricing in a lot more risk than it has in the past. Plus, with credit policies tightening all over, it's going to be tough to finance your options, unless you sell options to reduce your costs.

Speaking of tightening credit policies, the market is finally starting to feel the impact of the sub-prime and housing disasters. Bad news is, it isn't getting any better. Have you looked at the Homebuilder ETF?

Posted by Option Addict at 12:38 PM | Permalink | Comments

I know it's a bad day, and like I've been mentioning, I think it might get worse... I hope everyone is doing ok.

Before I get something going this morning, I am going to set up a conference call, and want to extend an invitation to anyone willing to join. I will start out with some Q&A, but the ultimate goal is to re-record last nights Mastertalk session. I can't do that without some traders on the other end of the phone. Here's the link and details...

To join the online event
-------------------------------------------------------
1. Go to https://investools.webex.com/investools/onstage/g.php?d=570607605&t=a
2. Enter your name and email address (or Enrollment ID).
3. Enter the event password: This event does not require a password.
4. Click "Join".

-------------------------------------------------------
To join the teleconference only
-------------------------------------------------------
Call-in toll-free number (US/Canada): 866-469-3239
Call-in toll number (US/Canada): 650-429-3300
Toll-free dialing restrictions: http://www.webex.com/pdf/tollfree_restrictions.pdf

Posted by Option Addict at 10:20 AM | Permalink | Comments

Looks like good old Amazon had a great announcement. Nice call. Nice entry signal.

Today/Tomorrow will be riddled with earnings announcements. Yesterday was a nice awakening to everyone reminding traders how tough things can be during earnings season. Especially if you decide to hold a trade over earnings. I have worked this horse over so many times, but you have to realize that anything can happen over earnings. Plan for anything. Yes, the stock can gap hard against you, what are you going to do about it? It could do nothing and wipe out your implied volatility. It could move in your direction, but you still lose money on the loss of time premium. Are you sure you've got it under control?

The secret ingredient is always proper position sizing.

Moving on, you'll see that the banking sector has rebounded a little today, the yen has pulled back, and real estate stocks have been given a courtesy bid by the market. It feels a little fake, especially with Amazon pumping the NASDAQ full of market cap. I'm sure you'll take any gain as opposed to yesterday, but keep your finger near the trigger. This recent activity doesn't feel right. The Option Addict VIX is starting to get aroused.

Recommendation: Buy Low, Sell High

Long: Position Sizing

Short: Earnings season

Posted by Option Addict at 7:57 AM | Permalink | Comments

The news of this referee marks a all time low for the NBA. First the Cavs vs. Spurs Final, the Kobe Tape, and then this! What I can't get over is thinking about all those unlucky people betting on the potential outcome of a basketball game and losing everything. Good thing this guy didn't officiate my Warrior games.

Check out the details of these "fixed" games...

Big money always wins in the long run. This is why we check for unusual volume before taking our trades. I am tempted to discuss market makers fixing the market, specifically on the Amex, but not today. I'd rather keep rambling.

Another reason to gently ease off the buying ( a little ) and diversify with some option selling. Keep watching the meltdown in Realty stocks and Financials...there is so much premium out there for the taking.

I am starting to get a little more cautious though. This pullback today is pretty significant. The breadth is horrible, and there is some panic selling in the futures market as we head into the close. Have you seen Countrywide and the other subprimes? Crushed.

But I have a reason why Scott Baio is 45 and still single...

Recommendation: Play defensively. I'm not sure what we are getting into, but it smells fishy.

Long: the VIX

Short: Scott Baio

Posted by Option Addict at 9:30 AM | Permalink | Comments

Click To Play

Again, right click and open in a new window.

New audio equiptment is coming shortly, sorry for the horrible sound.

Posted by Option Addict at 9:41 PM | Permalink | Comments

Click To Play

Right Click and open in new window.
I will have a fix for the worthless audio shortly.

Posted by Option Addict at 9:18 PM | Permalink | Comments

Posted by Option Addict at 12:32 PM | Permalink | Comments

I wanted to quickly address the "conference call" that was discussed this morning. Yes, we conducted a conference call to experiment with the technology. I posted the link to it in the chat, and then after it was over I went back and removed the link. I didn't want to leave the link available after we were done.

Next time I will provide some notice. Today's decision was made on a whim. I am hoping that this posts will keep my inbox from going over it's allotted size over the weekend with questions about it.

Sorry for the confusion.

In the meantime, I want to share a quick story from one of our regulars. Grab your tissue, and a tallboy.
Addicts, Arty. Arty, Addicts. Nice to put a face with a name. Here is the story he sent. It is actually a really big deal. Thanks for sharing buddy.

Jeff,
This is all I have a picture of me in the Library of the Danish Stock exchange, in my socks, drinking a Carlsberg tallboy. If it was available at the time I would have been wearing an option addict stocking cap.

The story goes: I told my exchange student son from Denmark Jens I had to get into the exchange. He had seen me on the Blog and TOS etc. and had rudimentary knowledge of what I am doing. He said they do not let people in but he would get us in. So in the pouring rain we roll up to the side door and he makes up this story of my illustrious career as a trader on the floor of the NYSE. Dude buys it. The guy actually let’s us in provided we take our shoes off. All though the picture is kind of lame we managed to snap one off and have a look around. It reminded me of the pictures in my illustrated copy of Reminiscence, a great deal of heritage and tradition. I was actually humbled and awe struck (and a little tipsy).

The best part of the story is still yet to come. After we walked out this older Danish lady came up and emphatically thanked us in English and then went off with literal tears in her eyes to Jens in Danish. I thought we were busted. No…..since they trade the Danish Stock Market in little computerized trading rooms today that is not all that impressive, I come to find out that original part of the exchange that we were let into is not open to the public.

Why is that important? What she said was that she had tried several times in her lifetime to get in and look around but was never allowed. However that day, she rode our coattails with some quick thinking. Why was it such a big deal to her? Because her grandfather had designed and installed the roof and ceiling of the exchange and she had never seen in person from the inside in all of her trips to Copenhagen as many times as she had tried. It was awesome!

So that is my story, I shall stick to it.

Addicts around the globe doing their part to change peoples lives. Nice work my man.

So that concludes another fantastic week. Well, not according to the tape, but don't beat yourself up over it. Remember the rules we live by and do your part to implement them. What is really important is that you have a good weekend and let the mind focus on something else this weekend.

Recommendation: See you all on Monday.

Long: Arty

Short: 13,851 on the Dow

Posted by Option Addict at 2:16 PM | Permalink | Comments

Check the way Bear Sterns is trading today. I am an hour and a half away from watching my first spread of 2007 expire worthless, leaving me a $1.35 credit. I know what you all are thinking... "Wow. You must be proud."

As the VIX continues to form a higher base, I am likely to keep throwing these out there. It is a great hedge against loading the boat and going long with overpriced options. I know what you are thinking... No, I am not a sellout, I am a trader. Traders adapt to changes in their environment. No, I am not defensive... I just don't know how excited I am to trade spreads.

Speaking of BS, tonight is the night that the soon to be bestseller book, Harry Potter and the Deathly Hallows comes out. Instead of waiting in line to get it, I provided a link to Amazon to get a copy, if Harry Potter is "your thing." I have heard some chatter that people will actually be waiting in line at midnight tonight to get a copy. Have fun. I'll be sleeping.

Since this link and some book sales will generate a lot of nice traffic for Amazon, Why not take a position soon? Earnings are coming out next week, and if the market responds, taking this above $75 and negating the questionable top, I am going to go long. Here is the all-time chart on Amazon that illustrates a lot of upside the stock has yet to reach.

However the 1 year chart shows the stock is hesitating to make it beyond resistance. This is why I would wait for a breakout, or a higher low before taking any action.

Option premiums are getting expensive here along with the rest of the market. So when it comes down to choosing options, choose wisely.

However, if you share my point of view that this book release is a not anything you plan on dressing up for, you can short the rest of the book sellers... BKS, BAMM, and BGP. All of them are left in the dust behind Amazon. Hey, maybe we structure another pairs trade?

Recommendation: Thanks to those who participated in the conference call this morning.

Long: Amazon, assuming I get the signal I am waiting for.

Short: Harry Potter

Posted by Option Addict at 11:28 AM | Permalink | Comments

Anyone seen Transformers yet? Me neither. I doubt there are too many out there that understand the transformer heritage like myself, and that might be due to the fact that I am old enough to be your child. However as a kid I subscribed to the entire transformer catalogue. My first actual toy purchase of my life, with my own hard earned money was an Optimus Prime action figure.

Optimus prime transforms into a cab over semi truck and not to mention holds the postion of commander or the Autobots and upholds and protects the entire universe around him. A hero of the highest caliber both on Cybetron and on Earth.

I highly recommend enlisting for the film this weekend, even though I haven't seen it. You can't go wrong with such a unique story line, and Michael Bay & Steven Spielberg putting this together. That ought to be $100 well spent.

Now on to the greatest Semi in the galaxy, the SOX. If you were to conduct a relative strength comparison between the broader markets, you'll notice that the NASDAQ has upheld a trend more so than the S&P or the DOW. The quiet storm behind this trend has been Semiconductors (SOX). Take a look at the performance on the 1 year.

With such a great trend, I urge you to consider at least throwing down an August vertical spread to capture the free money that is wasting away in these put options. If you are a pessimist about the market, here is a great reason to throw down the 550/560 Bear Call.

If you would rather wait for a breakout, or prefer to avoid trading the SOX, check out the SMH below. It's trading just over $40 and options here are cheap. This should be a great investment as Semis are a leader, and it appears that so many individuals are scared of the market at the moment. The majority claim that it can't go higher. Which is a great indicator to buy anything and everything that will fit into your account. What can I say, I am a contrarian.

Since was forced to look at a 5 year chart today, I looked at several. Here are some additional long term trades I cam across. Have some fun!

VMCSo much for being bullish on materials, huh? I have been waiting for this pig to break support and loaded up on some puts.

STT

By the way, I was up all night creating this video. I blow the competition away at the costume parties.

Posted by Option Addict at 11:22 AM | Permalink | Comments

Sonics forward Kevin Durant scored the second-largest endorsement contract for an NBA rookie when he signed a seven-year, $60 million deal with Nike that included a $10 million signing bonus. The Beaverton, Ore.-based shoe and apparel company and Durant's agent Aaron Goodwin confirmed the announcement Wednesday. Seattle Times


According to industry sources, Durant declined a seven-year, $70 million deal with Adidas that included a $12 million signing bonus largely because he has a long history with Nike dating to the eighth grade in Washington, D.C. Seattle Times

That's a nice flag forming in Nike, one great performer over the last year. I thought a Durant contract would have been the breakout. Although after careful consideration, Nike wouldn't match the Adidas deal that was offered to the unproven superstar. Oh well, that means they still have $12 million in the bank.

How I am hoping one of these superstars signs a shoe deal with CROX or DECK to generate some price movement in these positions.

Now that I have done my damage in the market today, I am hopefully going to think up something worthwhile to blog about. Feel free to leave requests.

By the way, even though you've already read this article, I would appreciate a click to this link.
http://www.forbes.com/investingideas/2007/07/06/bear-stearns-options-pf-ii-in_jk_0705chartroom_inl.html

Every time you guys venture over to one of my articles, they put me on the radio. Thanks for your support.

And buy Nike on the break.

Recommendation: If you re-read the Forbes article, see if you can spot the major error they made when posting this on their site.

Long: Nike

Short: Sonics

Posted by Option Addict at 11:52 AM | Permalink | Comments

Figure 1: Here is Chris (from Chris & Catherine) Demonstrating how to make your own OA shirt.

Figure 2: Here is Tom Degroodt demonstrating how you don't need a shirt to be an official addict.

Figure 3: Xavier Williams (Tonya's son) an Option Addict in training.

Recommendation: Anyone catch the gap on KEYS? It was on the videos for the last two weeks...

Long: Videos

Short: Watchlist this week

PS- Thanks for sending the photos everyone.

Posted by Option Addict at 10:56 AM | Permalink | Comments

Posted by Option Addict at 11:32 AM | Permalink | Comments

It looks like the majority passed on this one. Based on the comments I read, it was for the right reasons. Nice work!

Although if you knew which stock it was, the entry point doesn't matter...it still was an amazing trade. This was one we hit on the Marketcast, and through the watchlist. Give up?

I also would have passed on that same entry point. Some might argue that this is a breakout, and say "I thought you trade breakouts?!" To which I reply that there is a big difference between a breakout, and an uptrending stock making new highs.

FCX is an uptrending stock. It makes higher highs and higher lows. Therefore, it never hesitates at it's prior high to form resistance. If there isn't any resistance, there isn't anything to breakout of. Here is an example of a breakout...

I bet you know where I'm going...

ETN

The resistance is there, the volume is there... that is what we call a breakout.

Don't you love it when you take a boring, low volatility stock like this in the early stages, and it makes the NYSE top ten list?! Nevermind that though... analyze that chart. It is textbook of everything I teach about the strategy.

You take the trade on the breakout, everything signals perfectly, and you are in. Nice work!

The next day, you are getting killed on the trade. No profits, and a huge loss to start off the day. You get emotional. In fact, some sell thinking that the trade is wrong. However, notice on that second day, the sellers could only take the price back down to where it broke out of. They know that is as good as it will get, and they cover their short...while the rest of the market is buying. As you can see, the end result is awesome. There is no way to predict a day like today, but the stock is sitting beyond it's target price of $102. The hardest thing to do now is to decide whether or not to get greedy.

Recommendation: Get greedy

Long: Trading after a good weekend

Short: Monday's

Posted by Option Addict at 8:23 AM | Permalink | Comments

Posted by Option Addict at 10:07 AM | Permalink | Comments

If you are able to attend, I am trying to get a head count. Please leave your name in the "other" field...as well as any comments you have.

Posted by Option Addict at 1:34 PM | Permalink | Comments

I have been a little preoccupied this morning with the market and some irritated executives. So many things to throw money at and so little time. I am amazed at the rally today, but am really impressed at most of the bearish picks holding ground today. The biggest loser is BXP and only up 1.28% at the moment. All this while the Dow is up two hund!

CTSH: That was easy.

RTP: Getting ripe

MA: I got a call from Mastercard last night. Instead of making my minimum payment, a supervisor got on the phone and begged me to buy this dip this morning. I agreed, but only after we negotiated that the "over the limit" fee was waived.

Recommendation: I don't really have a Mastercard account. Grandma bought up all my debts a long time ago (Rounders).

Long: Stocks and diversification

Short: Spreads

Posted by Option Addict at 10:38 AM | Permalink | Comments