stock market 6/19 option analysis

Stock

CAT
A
HD
nYX
TXN
AMZN
MRK

Strong

Market is maturing for a real pullback. Why?

First, I was a strong bear in the past several weeks. If I were the same myself as I were a week ago, I would short with no hasitation at the end of today. However, I'm not so sure and did not take any action. Why, just too many people are buying on dip, and MM is strongly supporting this behavior so far.

I'm evening wondering whether I should buy some SDS right now in AH, however, with earnings from AAPL,EBAY etc beating consensus estimates, I'm afraid of MM may push it up further tomorrow to trap the bears who baught their position at the close today.

That's exactly what MM want to see before the decisive pullback move, especially if it's not just a pullback, they need people to buy whatever they sell.

With more and more bears trapped into the status I'm in right now, MM will start to short the market soon.

Secondly, today's move and its close is unique since the rally started in early March. Consider that it's obivious that the uptread is weakening in the past two weeks, with today's rally effort faded, especially its close at low of the day. It's hard to imagine market is able to negatate the drop the day before yesterday. Which implies, a down trend is almost confirmation in place.

It's quite obiviously to me I should add some short position right now. But as I said, I dare not to do it.

With good earnings from AAPL, EBAY (tech is very strong these days), perhaps there is something left for the bulls. So not yet, bears, be patient for another day or two.

But I still stongly believe this will be the first down week since the rally started, which means either tomorrow, or Friday, we may see a big down day.

For bears, better to so small up and down tomorrow to release any energy left for the bulls, and a decisive down trend move on Friday to end the week.

Let's see what's going to happen. I'm afraid MM may not give me time to add short position ( I mean it will be too late when I have made up my mind.

Post it as an indicator for others to make their judgement of market status.

4/23/2009 Earning Report Market Data

Before Market Opens:
Economics:
8:30am ET

* Initial Jobless Claims for the week of 4/18 - Street expects 639K

Earnings:
Ball Corp. (NYSE: BLL) - consensus EPS $0.76
Bunge (NYSE: BG) - consensus EPS $0.49
CME Group (NYSE: CME) - consensus EPS $3.20
Colonial Properties Trust (NYSE: CLP) - consensus EPS $0.73
ConocoPhillips (NYSE: COP) - consensus EPS $0.42
Credit Suisse (NYSE: CS)
Danaher (NYSE: DHR) - consensus EPS $0.73
Eagle Materials (NYSE: EXP) - consensus EPS $0.11
EMC (NYSE: EMC) - consensus EPS $0.16
Exelon (NYSE: EXC) - consensus EPS $1.14
Fifth Third (Nasdaq: FITB) - consensus loss $0.27
Goodrich (NYSE: GR) - consensus EPS $1.07
ITT (NYSE: ESI) - consensus EPS $1.41
JetBlue (Nasdaq: JBLU) - consensus EPS $0.03
L-3 Communications (NYSE: LLL) - consensus EPS $1.63
LB Foster (Nasdaq: FSTR) - consensus EPS $0.27
Marriott (NYSE: MAR) - consensus EPS $0.14
Marshall & Ilsley (NYSE: MI) - consensus loss $0.33
National Oilwell Varco (NYSE: NOV) - consensus EPS $1.06
Occidental Petroleum (NYSE: OXY) - consensus EPS $0.37
Old Dominion Freight Line (Nasdaq: ODFL) - consensus EPS $0.11
Penn National Gaming (Nasdaq: PENN) - consensus EPS $0.34
Potash (NYSE: POT) - consensus EPS $0.86
Raytheon (NYSE: RTN) - consensus EPS $1.01
Royal Caribbean Cruises (NYSE: RCL) - consensus loss $0.34
ScanSource (Nasdaq: SCSC) - consensus EPS $0.24
SunTrust (NYSE: STI) - consensus loss $0.65
Hershey (NYSE: HSY) - consensus EPS $0.34
UPS (NYSE: UPS) - consensus EPS $0.56

Intraday or Not Specified:
Economics:
10am ET

* Existing Home Sales for March - Street expects 4.65M

Earnings:
AmSurg (Nasdaq: AMSG) - consensus EPS $0.39
AU Optronics (NYSE: AUO) - consensus loss $0.67
AutoNation (NYSE: AN) - consensus EPS $0.16
Avocent (Nasdaq: AVCT) - consensus EPS $0.21
Black & Decker (NYSE: BDK) - consensus EPS $0.08
CoBiz (Nasdaq: COBZ) - consensus EPS $0.01
Deckers Outdoor (Nasdaq: DECk) - consensus EPS $0.64
DeVry (NYSE: DV) - consensus EPS $0.67
Diamond Offshore (NYSE: DO) - consensus EPS $2.22
EZCorp (Nasdaq: EZPW) - consensus EPS $0.36
Gardner Denver (NYSE: GDI) - consensus EPS $0.59
International Game Technology (NYSE: IGT) - consensus EPS $0.22
KVH Industries (Nasdaq: KVHI) - consensus loss $0.18
Nucor (NYSE: NUE) - consensus loss $0.57
Philip Morris Int'l (NYSE: PM) - consensus EPS $0.69
Rambus (Nasdaq: RMBS) - consensus loss $0.39
SunPower (Nasdaq: SPWRA) - consensus EPS $0.25
Taser (Nasdaq: TASR) - consensus loss $0.01
Union Pacific (NYSE: UNP) - consensus EPS $0.66
US Airways (NYSE: LCC) - consensus loss $2.38

After Market Closes:
Earnings:
Amazon.com (Nasdaq: AMZN) - consensus EPS $0.31
American Express (NYSE: AXP) - consensus EPS $0.12
AmeriCredit (NYSE: ACF) - consensus loss $0.30
Amgen (Nasdaq: AMGN) - consensus EPS $1.15
Bucyrus (Nasdaq: BUCY) - consensus EPS $0.68
Burlington Northern (NYSE: BNI) - consensus EPS $0.97
CF Industries (NYSE: CF) - consensus EPS $0.71
Chubb (NYSE: CB) - consensus EPS $1.38
City National (NYSE: CYN) - consensus EPS $0.24
Columbia Sportswear (Nasdaq: COLM) - consensus EPS $0.07
Con-Way (NYSE: CNW) - consensus loss $0.22
Data Domain (Nasdaq: DDUP) - consensus EPS $0.06
Eastman Chemical (NYSE: EMN) - consensus EPS $0.14
FNB Corp. (NYSE: FNB) - consensus EPS $0.12
J&J Snack Foods (Nasdaq: JJSF) - consensus EPS $0.25
Juniper Networks (Nasdaq: JNPR) - consensus EPS $0.17
KLA-Tencor (Nasdaq: KLAC) - consensus loss $0.26
MEMC Electronic Materials (NYSE: WFR) - consensus loss $0.02
Micrel (Nasdaq: MCRL) - consensus EPS $0.01
Microsemi (Nasdaq: MSCC) - consensus EPS $0.18
Microsoft (Nasdaq: MSFT) - consensus EPS $0.39
Netflix (Nasdaq: NFLX) - consensus EPS $0.31
PMC-Sierra (Nasdaq: PMCS) - consensus EPS $0.01
Ramco-Gershenson (NYSE: RPT) - consensus EPS $0.55
The Cheesecake Factory (Nasdaq: CAKE) - consensus EPS $0.10
YRC Worldwide (Nasdaq: YRCW) - consensus loss $1.90

How to become a profitable trader

Every trader has a learning curve. No one is immune to proving themselves to the trading Gods. When you have paid your dues they will open the vault to you. Unfortunately the key to unlocking the vault has nothing to do with hard work. It has everything to do with discipline.

"Knowing more" or studying harder does not necessarily make you a better trader. As a matter of fact if you study too much you will be confused and that leads to indecision. A huge enemy of profitable trading. It requires a plan with an edge, the ability to focus and the skill to refocus.

There is always the same curve for would be professionals, it is just a matter of where you are in the curve.

• you lose money
• you learn how to not lose money
• you learn how to manage a trade and be green on the screen
• you accept trading is about probabilities and learn how to use leverage

When a trader starts out and is losing money it is usually because he is trying to make money first. In other words focusing on how much a trade can make instead how do I manage risk.

When trader finally learns to focus on risk first, then assess profit potential he can now get more screen time. He begins to see the trades forming and takes losses as he should but he is not able to put all the pieces together. His timing is off.

Next trader learns that good entry price comes from anticipating what he will do before he needs to do it. He is no longer chasing. He is patient to get his price. He is making some money, but not pulling the trigger as quickly as he should, he doesn't trust himself yet.

What does he need to trust? He needs to trust he will do what he is supposed to no matter what happens next. That is where confidence comes from.

When trader reaches the final stage he now expects to make money. Does that mean he will make money every day? NO. Trader does however have full confidence he will follow his plan which allows him to use more leverage when probabilities and trade expectation are clear.

Ask yourself honestly where you are in the curve. This unbiased assesssment of what you need to work on will be the quickest and most productive road to consistent profitability. Looking in the mirror and lying to yourself will lead to years of frustration. You are either making money or not. The P&L doesn't lie

There are definite steps to trading success, know where you are and take the next step.

Ask a dumb question: how to apply "covered call"? from where broker? Thanks in advance.

A:
1. First you need to apply option trading capability in your account from your broker or trading firm. Sell covered call is the lowest level in option trading and has the least risk comparing other option tradings.

2. Option is the proxy of stock, it is a right to buy/sell certain stock in certain time period at fixed price. ( Strick Price)
To sell covered one call you should have at least 100 shrs underline stock. One call contact represents 100 shrs stock. One call contract means you have the right to buy 100 shrs of the stock in certain time frame at fixed price.

Sell covered call is just opposite of buying call.
By selling a call contract to a buyer, you have the obligation to provide 100 shrs of underline stock in certain period of time at fixed price. Since you already have underline stock, so your sold call is "covered" by your stock.

If you do not have stock, you still can sell call, but the call you sell is "naked" meaning the call does not has underline stock to cover. If buyer want to use his/her call contract to buy stock, you have to buy stock from market and provide these shares to the buyer at pre-defined price. ( or contact price.) For example. You sell a $50 August call of ABC stock at $2 and stock price is also $50 at the time. 10 days after you sell the call, the stock price went up to $60, the buyer has the right to buy 100shrs ABC stock from you at $50 regardless current stock price. You have to buy 100 shrs of ABC from market and deliver those shrs to the buyer at $50/shr That is dangerous if you are not seasonal trader.

3. After you done 1 and 2, you are ready to sell covered call. There are two parts to decide call price: 1)Intrinsic value 2) Time value which also related to Implied Volatility (IV) of the stock.

1) Intrinsic value: example: stock price is $50, for $45 call has $5 intrinsic value. (50-45=5)
2) Time value: The longer time period of contract contain, the higher time value of contract will have. Example: stock price is $50, For $50 call, there is no intinsic value but only the time value. August $50 call price is $2, so the time value from now to 8/15/08 (OE day) is $2. For Sep. $50 call it cost $3.

You can sell 1 August $50 call and get $2. By 8/15/08, if stock still has price $50 or under, you get $2 as the call contract expired worthlessly. Since you still own the stock, you can sell next month call again.

The IV plays important role in option price. High IV means stock price moving very quick in either direction. High IV generate high time value of the stock option.

For the covered call seller, the best time you sell the covered call is when IV has spike and option become very expensive. Seller has good chance to get profit. For the buyer, just do opposite of it, buy option when IV is low.

Normally, sell next month covered call is the best interest of seller. Because option time value decay within 30 days increase exponentially.

4. Something you should know about selling covered call.

Selling covered call is not risk free operation, in general there are two risks involved in this strategy:
1) If stock fall sharply after you sell covered call, you can not cut loss by selling the underline stock.
2) If stock up significantly after you sell covered call, you can not sell the stock before OE to lock in the profit.

It is not suitable for downside protection, since the premium is limited. For those stocks which has singnificant down side risk, this strategy is not suitable.

It is also not suitable for the stock which has significant upside potential in near term, become it locked up underline stock until OE. Share holders could miss good profit opportunities.

This strategy is suitable most for those stocks which moving in a range and having a positive slop in general.

The E Mini S&P Futures Contract （ES）

The E-mini S&P 500 futures contract (ES) is a trading vehicle offerred by the Chicago Mercantile Exchange (CME). The price of the Emini SP closely follows the price of the S&P 500 Index. The Emini SP is a perfect and economical way in which to trade 500 of the largest and most important U.S. stocks.

The Emini SP is the smaller version of its "big brother", the standard S&P 500 futures contract. The Emini SP is one-fifth the size of the standard contract. The "E" in Emini stands for electronically traded and the "mini" means the smaller version of the standard contract.

Each full point of an Emini SP futures contract is valued at $50.00. The price of the Emini SP moves in one-quarter increments of $12.50. Each of these one-quarter movements is called a "tick". If the Emini SP moved 3.50 points, it would equal a move of $175.00 ( 3.50 points x $50 per point = $175.00).

The current price of one Emini SP contract is 820.00 points. That means the current market value of one Emini SP contract is $41,000 (820 points x $50 per point). For you to daytrade an Emini SP contract you are only required to put down a very small percentage of the current value of the contract. The amount required, which is similar to "margin", varies among brokers but could be as low or even lower than $500 per contract. You therefore can control an asset currently worth $41,000 by putting just $500 down.

The Emini SP futures contracts expire on a quarterly basis in March, June, September, and December. The trading symbols for 2009 are ESH9 for March; ESM9 for June; ESU9 for September: and ESZ9 for December. There can be more than one of the above contracts traded at the same time. For trading purposes though, we are most interested in and only trade what is called the "lead" contract. For instance, now both the March 2009 and the June 2009 contracts can be simultaneously traded. The "lead" contract is the March 2009 contract and that is the one we would be currently trading.

Normally, the last day that we trade the current lead contract is the Wednesday before the second Thursday of a contract month. The last day to trade the March 2009 contract therefore would be March 11, 2009. The first day that we trade the new lead contract is therefore the second Thursday of the contract month. The day that we start trading the new lead contract is called "rollover day". Rollover day to the June 2009 contract would be March 12, 2009. Exception: If the 1st day of a contract month falls on a Friday, the first Thursday of the month would be rollover day.

how to hedge overnight position risk

Today's market has big gap up and gap down. Those who have short term or long term swing positions can easily be caught off guard.
So it is crucial to know how to control your risk under this situation. I will take an example to explain the idea. If you have bought 1000 shares of DIA and current price is 71.35 and your stop loss in your mind is 70.99. If the next day gap down open at 68, you will get fill around 68, which is well below your stop loss. What you can do is to use future to hedge your overnight risk taking advantage of the fact of almost 24 hr trading schedule for YM. Write a small program to automatically short 2 contracts of YM (roughly the same as 1000 shares of DIA) if YM retraces 36 points, which is equivalent to 71.35 - 70.99 = 0.36 points of DIA.