tag:blogger.com,1999:blog-16100598028938338972024-03-19T10:48:45.303-07:00SeasonalysisUnknownnoreply@blogger.comBlogger32125tag:blogger.com,1999:blog-1610059802893833897.post-69805516248762761732016-03-05T18:49:00.004-08:002016-03-05T19:00:39.578-08:00Having Every Tool In Your Toolkit<span style="background-color: white; font-family: "arial" , sans-serif; font-size: 14px; line-height: 18px;">Jon Haghayeghi | Twitter@LoneStarQuant</span><br />
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Market timing is a challenging proposition, which is why it is important to consider all available information when making an investment decision. Whether a technical trader or a fundamental trader, being aware of news events, earnings reports, fundamental value, macro trends, and historical trends are all important. For the fundamental investor looking to enter a long term position or a technical trader looking for a short term move, historical trends can provide valuable insights that have the potential to increase returns (or reduce losses) on a trade.<br />
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Often when searching through the Seasonalysis database, I like to create my own universe of stocks that have strong fundamentals before doing any search. The motivation is that in the event that history does not repeat itself, I like to ensure that the position I hold has fundamental strength so I can wait for the market to reflect a fair valuation of the companies equity. Some of my best trades in recent history have been the result of the combination of great fundamentals, great timing based on historical patterns, as well as near term technical strength.<br />
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I am interested in the following large-cap that trades in line with industry, has technical support, that I don't mind holding while it pays a 2.25% dividend.</div>
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Here is an example of a trade that I might reject because the stock trades at a 50% premium to industry in terms of its earnings multiple. Additionally, the stock has and mixed technical strength.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk93sw57X4h4Ruw2c5ZdGJ7_dQRPLgeeBNzzGfJwN-MjFuqqOjOdjRBxirxrKtEy3KAnJO_IP8iY0f-jRUb7ineZq5XSHrEeaSM1rcBmNaTwZzP11kF2-tS1thbBvx01fkdOQeAnTaQarf/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="417" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk93sw57X4h4Ruw2c5ZdGJ7_dQRPLgeeBNzzGfJwN-MjFuqqOjOdjRBxirxrKtEy3KAnJO_IP8iY0f-jRUb7ineZq5XSHrEeaSM1rcBmNaTwZzP11kF2-tS1thbBvx01fkdOQeAnTaQarf/s640/Untitled.png" width="640" /></a></div>
<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-65180537692425532222015-08-04T22:55:00.001-07:002016-02-01T14:54:22.658-08:00Moving with the trend<span style="background-color: white; font-family: "arial" , sans-serif; font-size: 14px; line-height: 18px;">Jon Haghayeghi | Twitter@LoneStarQuant</span><br />
<span style="background-color: white; font-family: "arial" , sans-serif; font-size: 14px; line-height: 18px;"><br /></span><span style="background-color: white; font-family: "arial" , sans-serif; font-size: 14px; line-height: 18px;">It has been a busy month - Greece struck a deal, U.S. companies have reported earnings, and China has banned short-selling to curb the recent 30% drop in equity prices. Many american investors are buying dips, recognizing that there has not been a 10% drawdown in the U.S. markets in the past four years and the trend can continue as rates remain low as the Fed holds 4.5 trillion in securities. With that in mind, let's take a look at a couple potential long trades.</span><br />
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<span style="background-color: white;"><span style="font-family: "arial" , sans-serif;"><span style="font-size: 14px; line-height: 18px;">Ace Limited has rallied ten years in a row during the three months following August. Although the stock has a beta of 1.01 (nearly perfectly correlated to the broad market), has rallied the past several weeks despite softness in the equity markets. Based on historical data, we expect the stock to rally about 8.5% over the next three months.</span></span></span><br />
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<span style="font-family: "arial" , sans-serif;"><span style="background-color: white; font-size: 14px; line-height: 18px;">Nike (NKE) is a large-cap that has historically traded well in August and September. </span></span><span style="background-color: white; font-family: "arial" , sans-serif; font-size: 14px; line-height: 18px;">The historical average gain is 8.5% for the 56 days starting August 5th. </span><br />
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<span style="font-family: "arial" , sans-serif;"><span style="background-color: white; font-size: 14px; line-height: 18px;">Both of the patterns listed above are great candidates for premium selling and have liquid option chains. I encourage you to get creative - there are ways to limit your downside risk without setting stop-losses. Stay smart and trade safe!</span></span>Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-52881473006923660722015-02-09T02:49:00.004-08:002015-08-05T03:10:06.671-07:00Large cap entries for February<div style="text-align: right;">
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Jon Haghayeghi | Twitter@LoneStarQuant</div>
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Everyone needs extra money for Valentines Day, which is why we are here to show you trade setups for companies in the S&P500 that open in February. These stocks are highly liquid and optionable, making them great candidates for a swing position.<br />
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<b><u>YUM</u></b><br />
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YUM! rallies year-after-year during the Spring. In fact, for the past 17 consecutive years YUM has rallied an average of 13% between February and May. The entry date for this trade is February 10th and exit date is May 11th.<br />
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<b><u>VFC</u></b></div>
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Seasonalysis members have traded VFC several years in a row. This company has particularly strong performance through the months of February and March. On average, the 63-day rally between February 7th and April 10th yields an attractive 10.3%.<br />
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Have a shorter trade-horizon? Priceline has a great setup through the month of February until the 10th of March.<br />
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-41521773288433444562015-01-09T11:56:00.003-08:002015-02-09T04:09:54.156-08:00Trade Setups for JanuaryBy Jon Haghayeghi | Twitter@LoneStarQuant<br />
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Time to kick off 2015 on a strong note. Let's take a look at some of the best trade setups for the month of January!<br />
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Hungry for a good trade? Jack In The Box has rallied over eighteen of the past nineteen years starting in mid-January. Looking specifically at the past 14 years, JACK rallied an average of 13% over the 77 days following the 14th.<br />
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We looked at YUM last year before rallying 16% over the 91 days following the 1/31. This has occurred 15 years in a row, moving an average of 13.3%.<br />
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Long time seasonal traders have been watching VFC rally at the end of January for nearly 30 years! Have your eyes peeled for a bullish setup Feb-March.</div>
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-81339998120103750692014-07-20T14:47:00.002-07:002015-02-09T04:10:06.001-08:00Long/Short Setup on Optionable Stocks By Jon Haghayeghi | Twitter@LoneStarQuant<br />
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We are running a scan of <i>optionable securities</i> with <i>market capitalizations</i> larger than 10 billion dollars. Two trades stand out - AMGN long and GLW short.<br />
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Amgen is currently priced at $118, with a high of $129. The stock has a strong upward trend, having more than doubled in price since 2012. This is also a low beta stock, so its performance is not closely tied to that of the broad market. </div>
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For this trade you can sell a vertical put spread expiring in October, purchasing the 115 strike and selling the 120 strike options. A single contract with generate premium of about $250 risking $250.</div>
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GLW is a short candidate with a 42 day duration. You can use weekly options and sell the August 29th vertical call spread. With the spot price at $21.84, you can sell the 21.50 strike and purchase the 22.50 strike call option collecting $50 and risking $50. </div>
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My portfolio is still skewed long because of FED policy, that said, geopolitical/credit risk is increasingly concerning. Stay smart and trade safe.</div>
Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-83013666246230626132014-04-24T06:45:00.001-07:002014-07-06T16:16:33.386-07:00Useful Questions About The Indicator<div class="MsoNormal" style="background-color: white; font-family: arial, sans-serif; font-size: 12.800000190734863px;">
<span style="font-family: Arial, Helvetica, sans-serif; font-size: 15.454545021057129px; line-height: 18px;">Twitter@LoneStarQuant</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 15.454545021057129px; line-height: 18px;">Today we are going to answer some great questions from Mike.</span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Hi Jon,</span></span></div>
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<span style="font-family: Arial; font-size: 10pt;">I captured this screenshot f</span><span style="font-family: Arial; font-size: 13.333333015441895px;">rom INTC</span><span style="font-family: Arial; font-size: 13.333333015441895px;"> </span><span style="font-family: Arial; font-size: 10pt;">and highlighted two questions:</span><br />
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<span style="font-family: Arial; font-size: 10pt;">In the upper panel would it be correct that the highlighted area is a mix of bull and bear periods but the time beyond is predominantly bullish?</span></div>
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<span style="color: #990000;">You are 100% correct. The 'Historical Seasonality' indicator is telling you, based on historical data, how many patterns are currently long and how many are short. 'Sell in May' is clearly reflected in the indicator, primarily for 7-30 day patterns. That said, there are still patterns of longer duration that are bullish for 30-90 days, which explains why periods beyond May/June are predominately bullish. </span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">In the second panel (which appears to show the "reliability of patterns) I have two questions: 1. would we consider the mid-March to Mid April period to be less reliable than the more green areas such as mid Feb to mid-Mar? 2. why is there no region shown from now to next few months )highlighted blank area) as this would seem to be the most important period?<u></u><u></u></span></span><br />
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<span style="font-family: Arial; font-size: x-small;"><span style="color: #990000; font-size: 10pt;">Great question. So the top indicator is historical seasonality, but the bottom indicator answers 'how seasonally is the stock behaving this year?' As you see, 'Successful Patterns' are 80% red, which is because 80% of active patterns for INTC are moving against their historical averages. The reason why we do not see any data for May/June is because it is because there are no observations yet for 2014. This indicator is useful in determining whether a stock is currently behaving seasonally.</span></span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Looking further down the INTC page, on the weekly summary:<u></u><u></u></span></span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Is this the correct understanding of the headers:<u></u></span></span><br />
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Avg Gain would be for an up weeks only? </span></span><span style="color: #990000; font-family: Arial; font-size: 10pt;">Correct with out looking at losing years.</span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Avg Loss would be for a down weeks only? <u></u></span></span><span style="color: #990000; font-family: Arial; font-size: 13.333333015441895px;">Correct without looking at bullish years.</span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">I am a bit confused on avg G/L compared to the Avg gain and Avg Loss. <span style="color: #990000;">The average G/L is takes the average of all the data; this is the most useful figure. In the above example it is telling you that during the week of July 01- July 06, the average move is negative 1.5%.</span><u></u></span></span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">As far as application is concerned, one approach I would like to consider is buying a longer term ITM option - say using your 63 or 91day period and then selling the OTM weeklies against it for weekly premium income (I think most would call this a diagonal spread). Do you have experience with this approach?<u></u><u></u></span></span><br />
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<span style="font-family: Arial; font-size: x-small;"><span style="color: #990000; font-size: 10pt;">Yes, that is a great approach to trading. I encourage traders to use vertical spreads and/or calendar spreads, but the diagonal captures the best of both worlds by using different strikes (like a vertical) and different months (like the calendar). You have a bit larger margin since the strikes are apart, but you are going to quickly benefit from time decay. Tomorrow we will model a diagonal (or double diagonal) based on an upcoming seasonal pattern.</span></span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Thanks Jon,<u></u><u></u></span></span></div>
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<span style="font-family: Arial; font-size: x-small;"><span style="font-size: 10pt;">Mike<u></u><u></u></span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 15.333333015441895px; line-height: 18px;">If you ever have any questions about Seasonalysis, feel free to send me an email at jon@seasonalysis.com. As always, stay smart and trade safe!</span></span></div>
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-74084684598625918362014-03-25T05:38:00.000-07:002014-07-06T16:16:41.002-07:00Costless Ratio Spread on Questar<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 15.454545021057129px; line-height: 18px;">Twitter@LoneStarQuant</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 15.333333015441895px; line-height: 18px;">As you would expect, natural gas consumption is highly seasonal. </span><span style="font-family: Arial, Helvetica, sans-serif; font-size: 15.333333015441895px; line-height: 18px;">Questar is a natural gas holdings company headquartered in Utah. </span><span style="font-family: Arial, Helvetica, sans-serif; font-size: 15.333333015441895px; line-height: 18px;"><u>Every year</u> for the past 15 years, STR has rallied for the 70 days starting 3/25. The average move over the 70 days is 10.1%.</span><br />
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Taking a look at the option chain you can see contracts expiring in 24, 52, 115, or 206 days. I have modeled a <b>costless ratio spread</b> that can give you leveraged exposure. If the trade moves against you, then you only pay commission. This trade uses July call options at the 23 and 24 strike. Take a look:</div>
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<span style="background-color: white;"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 15.454545021057129px; line-height: 18px;">By selling 10 contracts that are twice the price of the 20 contracts you purchase, some of the time-decay associated with being long a call option can be absorbed, while still </span><span style="font-size: 15.333333015441895px; line-height: 18px;">enjoying</span><span style="font-size: 15.454545021057129px; line-height: 18px;"> an exponential payoff and capping the max loss. The main 'caution area' is when STR is $23-$25, where you want to ensure time premium does not erode the position. Stay smart and trade safe!</span></span></span></div>
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-18936040236794021432014-03-18T08:13:00.002-07:002014-07-06T16:16:49.217-07:00Patterns for Today<div class="separator" style="clear: both; text-align: center;">
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<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-29606313954027735632014-03-13T07:29:00.001-07:002014-07-06T16:16:57.127-07:00Standard Deviation and How To Use It<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 15px; line-height: 18px;">Twitter@LoneStarQuant</span><br />
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A number of attendees had questions about <b>standard deviation </b>at the Festival of Traders. As promised, I am going to give you a definition and intuitive example so you understand why it is important to rely on low standard deviation samples.<br />
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Definition: <i>"<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;">In statistcs</span><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;"> and probability theory</span><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;">, the </span><b style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;">standard deviation</b><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;"> (</span><b style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;">SD</b><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;">) (represented by the Greek letter sigma, </span><b style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;"><a href="http://en.wikipedia.org/wiki/Sigma" style="background-image: none; background-position: initial initial; background-repeat: initial initial; color: #0b0080; text-decoration: none;" title="Sigma">σ</a></b><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;">) shows how much variation or dispersion</span><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;"> from the average exists.</span><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;"> A low standard deviation indicates that the data points tend to be very close to the mean</span><span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19.200000762939453px;"> (also called expected value); a high standard deviation indicates that the data points are spread out over a large range of values." </span></i><br />
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<b style="font-family: sans-serif; font-size: small; line-height: 19.200000762939453px;"><u>Example: Low Standard Deviation</u></b><br />
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<span style="background-color: white; font-family: inherit; line-height: 19.200000762939453px;">You will notice that the standard deviation for the above pattern is 0.30%. If you look at each year from 2008 to 2013, the return over the 56 days follows a tight range between 0.60% and 1.60%, giving a low standard deviation. </span><br />
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<b style="font-family: sans-serif; font-size: small; line-height: 19.200000762939453px;"><u>Here is a hypothetical example:</u></b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJE1IOzoctb7_zC7zGyxTcPXh2oqjRI4wv9yssh8-UCqsm7irXle-28z3KAPB9uZZem3Qbepi58Tw93uNPgOGpNeb_sDIIQwpp1MIzzwe0Eg3e55qdR5tKKoQifm8Wp1z3BdQWytTZ34Vr/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJE1IOzoctb7_zC7zGyxTcPXh2oqjRI4wv9yssh8-UCqsm7irXle-28z3KAPB9uZZem3Qbepi58Tw93uNPgOGpNeb_sDIIQwpp1MIzzwe0Eg3e55qdR5tKKoQifm8Wp1z3BdQWytTZ34Vr/s1600/Untitled.png" height="234" width="640" /></a></div>
<span style="font-family: inherit;">Notice in this chart that the average is clearly 1.5% since (1.5%+1.5%+1.5%+1.5%+1.5%+1.5%)/6 =1.5%. Then what is the standard deviation? It is 0. Why is it zero? Because every year the return is exactly 1.5%, so there is no 'dispersion' in the data.</span><br />
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<b><u>An example with a higher standard deviation:</u></b></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjau6oRYM2_Foh989x_XmsxzMGiLR-NHXZffRcyTkqa8FRj_N6bWVI42xvwHHOsBUSoBBRaFnXuIJ_KrF_65-txUUme-b_7EhPOnIE4a6G3WHoAHlSJFOoJQmPFN9SStAsZ0cQeAPDGEh3Y/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjau6oRYM2_Foh989x_XmsxzMGiLR-NHXZffRcyTkqa8FRj_N6bWVI42xvwHHOsBUSoBBRaFnXuIJ_KrF_65-txUUme-b_7EhPOnIE4a6G3WHoAHlSJFOoJQmPFN9SStAsZ0cQeAPDGEh3Y/s1600/Untitled.png" height="412" width="640" /></a></div>
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<span style="font-family: inherit;">Based on the first two examples, it should come as no surprise that Camden has a larger standard deviation (because each sample average is different). In this particular case, the average move of 8.8% is greater than the standard deviation of 5.6%, making this a quality candidate. </span><br />
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<span style="font-family: inherit;">It is always important to identify instances where the standard deviation is lower than the average move. This helps you eliminate noise from your decision making. Stay smart and trade safe!</span>Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-40036703017476456972014-03-07T14:20:00.002-08:002014-03-07T14:21:37.063-08:00Free Seasonalysis Education at 'Festival of Traders' <div class="separator" style="clear: both; text-align: left;">
<a href="http://www.tigersharktrading.com/2014FOT.htm?src=hagh3" target="_blank">Seasonalysis will be presenting on Wednesday, March 12!</a> Please join for FREE education right after the closing bell.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMajYPiHfMBFskUc_0C7F6CXsJScPbryHI7U2WpEg6KelmMpXmHuNUGA8rxv58RxnaNcnD0Ywz7SJ1uZhygAh3gkTbXPeuEOip0rzCrF4lGpgoYlr7sdhw4lcReS-nwjPKc4s2tpQo7PXC/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMajYPiHfMBFskUc_0C7F6CXsJScPbryHI7U2WpEg6KelmMpXmHuNUGA8rxv58RxnaNcnD0Ywz7SJ1uZhygAh3gkTbXPeuEOip0rzCrF4lGpgoYlr7sdhw4lcReS-nwjPKc4s2tpQo7PXC/s1600/Untitled.png" /></a></div>
<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-764046286485611852014-03-03T09:43:00.000-08:002014-07-06T16:17:42.665-07:00Preparing For Opportunity By Keeping Cash Reserves <span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14.545454025268555px; line-height: 18px;">Twitter@LoneStarQuant </span><br />
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By keeping an allocation of cash in your portfolio, you are always be positioned to seize short-lived opportunities. Some traders enjoy operating with 50% cash so that in extreme circumstances discretionary trades can be made.<br />
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On a day like today, with equities down a percent and a flight to safety in gold I am going to take advantage of the spike in implied volatility and start selling OTM bull-put spreads on stocks that rally in March. Take a look at a couple seasonal candidates under review:<br />
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BCPC is a nice small-cap stock with strong seasonal tendencies March through early May.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDeCzM33O-kDIYgtcNRUkwyVW4pyPQsFNbPtf3ZxS5YhgmwFOdq4mqtT9_OhV2Oix3QW1KdlHZoZMdCHZidTRNcpe7LhsdgSBSUZZQB6MJd3D5sYUgRmLhmX2efg6aiS2j7QSUfLeK5ijt/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDeCzM33O-kDIYgtcNRUkwyVW4pyPQsFNbPtf3ZxS5YhgmwFOdq4mqtT9_OhV2Oix3QW1KdlHZoZMdCHZidTRNcpe7LhsdgSBSUZZQB6MJd3D5sYUgRmLhmX2efg6aiS2j7QSUfLeK5ijt/s1600/Untitled.png" height="428" width="640" /></a></div>
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West Pharmaceutical Services is another great small-cap candidate.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNul8Ej5u59tLjOG5qR-8Mb37FHxj0pdToyFMyDfrDTxqr2diXji1vsr6wLZKlroS0hPTUQ5z6fyRewZX2O9EJRMgD_LPfoPU7_YwlYHYvXkLFV-lV4oRcfyc_-o-QEgVHS2C-id9Hcha6/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNul8Ej5u59tLjOG5qR-8Mb37FHxj0pdToyFMyDfrDTxqr2diXji1vsr6wLZKlroS0hPTUQ5z6fyRewZX2O9EJRMgD_LPfoPU7_YwlYHYvXkLFV-lV4oRcfyc_-o-QEgVHS2C-id9Hcha6/s1600/Untitled.png" height="424" width="640" /></a></div>
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Stay smart and trade safe!<br />
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<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-62365934200931769652014-02-27T07:28:00.002-08:002014-07-06T16:18:10.962-07:00Bid/Ask Spreads Are Tightening On Option Contracts<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14.44444465637207px; line-height: 18px;">Twitter@LoneStarQuant </span><br />
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Besides the broker's commission, the bid/ask spread is the only transaction costs incurred by the trader, and fortunately, bid/ask spreads on option contracts have tightened significantly over the past several years. This is particularly true for longer term contracts. For buy-side traders, this is wonderful because options are being priced with over-precision as a result of market maker competition (and active participation in the market). This allows an individual trader to navigate the market with greater speed and at a lower cost.<br />
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How can you take advantage of tight spreads besides getting cheaper market-order fills? Depending on your trading strategy and broker commission, you have greater flexibility to enter/exit positions, while paying less than 1% for the transaction. This facilitates opening a multileg option trade without having to worry about paying a significant amount of money to exit the trade.<br />
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Determining the 'fair market value' of an option is really difficult and the black-scholes model is not a holy-grail. As a result, when you see a contract that looks really inexpensive and the bid/ask spread is less that 5% of the value of the bid, then do not be afraid to enter the position. Mathematical models and fierce competition among market makers has empowered individual traders to purchase contracts at a low cost, so take advantage of it. Stay smart and trade safe!<br />
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Take a look at today's long trade candidate:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPZ7s16nstEKx8e1cc6rv_zJmgTo4KgrxJMCus3lnxd1tndbLGVtUGzp-iVXxWB4JXUsv_0aZj1udB6fAOc2UFoe3m_rddbYnjXGFQHENhNoAJ4oYBJ2dSxQnVThyGlX_qCejwqu8612Br/s1600/Untitled1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPZ7s16nstEKx8e1cc6rv_zJmgTo4KgrxJMCus3lnxd1tndbLGVtUGzp-iVXxWB4JXUsv_0aZj1udB6fAOc2UFoe3m_rddbYnjXGFQHENhNoAJ4oYBJ2dSxQnVThyGlX_qCejwqu8612Br/s1600/Untitled1.png" height="422" width="640" /></a></div>
Today's short candidate:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWuUPR3rim-JnIoA8-hNm-wwTRyKKCOmHeJWZ5O2KAaQzbUlxYESWSoy4x3xK7rwjmmlhigc1odN30lyKZGvGBC_UypeqYRxXkkLwNNpl1dHIU7v2gtiiSPFFCV_X1-1b6QL63KuA-i3L5/s1600/Untitled1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWuUPR3rim-JnIoA8-hNm-wwTRyKKCOmHeJWZ5O2KAaQzbUlxYESWSoy4x3xK7rwjmmlhigc1odN30lyKZGvGBC_UypeqYRxXkkLwNNpl1dHIU7v2gtiiSPFFCV_X1-1b6QL63KuA-i3L5/s1600/Untitled1.png" height="422" width="640" /></a></div>
<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-78235285622037628332014-02-24T08:39:00.002-08:002014-07-06T16:18:01.222-07:00Record High for the S&P500<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14.545454025268555px; line-height: 18px;">Twitter@LoneStarQuant </span><br />
<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14.545454025268555px; line-height: 18px;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white;"><span style="font-size: 14.666666984558105px; line-height: 18px;">Today the S&P500 broke to new highs - advancing nearly 1% this morning. Many momentum traders are stepping into positions as stock prices continue higher. Funds are also implementing new strategies based on recent news and data points released this morning. In this environment it is advantageous to be net-long, because there is no question that the markets can lift another 10% in a short amount of time. It is also smart to identify short candidates in the event that equities slide. It is better to buy insurance when you do not need it, especially if you can purchase it at a decent price. If implied volatility levels continue to fall, purchasing VIX call options can work as great insurance for a long portfolio. </span></span></span><br />
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We will look at one short trade and one long trade.<br />
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The short candidate we are looking at is a pure seasonal play with a duration that is optimal for a swing trader.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirgfhvL-q3RxjYaH_FCkpPk45um9kQroppXsJMLU81Ys-mY1vZ3RuNGUyEZEHgTtjVp7gUtQ_Pn-bAujyQv5WrHEqdyBW6kXC6peBgX1FWPoW3yf4y-DJmyZvdKn-C6bh0YjadYGgfD4El/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirgfhvL-q3RxjYaH_FCkpPk45um9kQroppXsJMLU81Ys-mY1vZ3RuNGUyEZEHgTtjVp7gUtQ_Pn-bAujyQv5WrHEqdyBW6kXC6peBgX1FWPoW3yf4y-DJmyZvdKn-C6bh0YjadYGgfD4El/s1600/Untitled.png" height="424" width="640" /></a></div>
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The long candidate is XRAY, which is 10% off its all time highs. Here are the seasonal statistics:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj83ebnS2akqrpNa3kE6R2Q4_vZrFqW8PHpL9HhcQmi7fhin1tNRRXn7UGKj2TkKZAXUthsu_NMoQI3ECUBCF01qUFwUCYNAVM2g0jf_43aUqJu4T3ATyvtRNXAEj5SswQFFRGGX3vZbT2R/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj83ebnS2akqrpNa3kE6R2Q4_vZrFqW8PHpL9HhcQmi7fhin1tNRRXn7UGKj2TkKZAXUthsu_NMoQI3ECUBCF01qUFwUCYNAVM2g0jf_43aUqJu4T3ATyvtRNXAEj5SswQFFRGGX3vZbT2R/s1600/Untitled.png" height="428" width="640" /></a></div>
Both of these equities are worthy of a glance. Most of the seasonal trades opened within the last quarter have been closed profitably, allowing for a cascade into positions like XRAY. Right now, there are a lot of really interesting statistics, both long and short, so I encourage you to dig through the database and find the trade pattern that meets your specifications. Stay smart and trade safe!Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-3516919988409973292014-02-21T00:56:00.001-08:002014-07-06T16:18:17.878-07:00With Equities at All Time Highs Lets Explore PRG<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14.44444465637207px; line-height: 18px;">Twitter@LoneStarQuant </span><br />
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Overnight U.S. index futures rallied to all time highs with U.S. equity markets in the 6th year of a bull-run. I am going to be opening positions on PGR Friday morning using profits our position BDX opened in December.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLoagunG0Kteb_9SZxGEWpQ0NQ914Hs2_E1ZHt0Yu34_aJ1s4Sx-7HblLB9KjJx-k60VieOwNwg0JQtGTOAKYMRsmDvE2k-3nZN6RtV7UAdbCJZ2KQBVAsRtcPRZ5LsodcZsLikjbD1bXC/s1600/Untitled1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLoagunG0Kteb_9SZxGEWpQ0NQ914Hs2_E1ZHt0Yu34_aJ1s4Sx-7HblLB9KjJx-k60VieOwNwg0JQtGTOAKYMRsmDvE2k-3nZN6RtV7UAdbCJZ2KQBVAsRtcPRZ5LsodcZsLikjbD1bXC/s1600/Untitled1.png" height="422" width="640" /></a></div>
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The options chain is perfect for this particular pattern with contracts expiring in 80 days. I am going to combine a vertical spread with a call option, to create a unique payoff schedule using May contracts. Purchasing 5 OTM CALL options and selling 10 vertical spreads, I am able to still generate a net credit while purchasing contracts. See Below:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSRRt0joSmWTBxn8CVb_LLitue6cNhC2enrcRSsdeRkqJ7MwIwNRB7468K4dmqFesoyCQMjFoK4hBw5bzDsScgpzOpp8yTMescs7BEvFZNuhAy6ZyVeS16EcBGffdVKJsznNdt2hgalGPI/s1600/Untitled1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSRRt0joSmWTBxn8CVb_LLitue6cNhC2enrcRSsdeRkqJ7MwIwNRB7468K4dmqFesoyCQMjFoK4hBw5bzDsScgpzOpp8yTMescs7BEvFZNuhAy6ZyVeS16EcBGffdVKJsznNdt2hgalGPI/s1600/Untitled1.png" height="382" width="640" /></a></div>
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This is a position that, given the right price action, you collect time premium, long the stock, and in the event that there is an explosion then you will make a lot of money off the gamma obtained purchasing the 5 CALL options. Stay smart and trade safe!Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-20396453492333437822014-02-20T08:25:00.002-08:002014-07-06T16:18:58.611-07:00Calendar Spread on Perrigo<span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 18px;">Twitter@LoneStarQuant </span><br />
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Perrigo has strong seasonal tendencies, so we are going to investigate opening a position based on the following pattern:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjY0DDw1vjEGWFwNvtf6dbV7LLaH9hiZULRt7QTSo7L6PCUUB6l35pwZytTD2sAytSlrtE56rgn1HiRuBJd9rTgyxH0rkAyVQDpOH9Wmfn5zw5L_wR38ti2X76563SzQQI0hG_HY0GTDEZT/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjY0DDw1vjEGWFwNvtf6dbV7LLaH9hiZULRt7QTSo7L6PCUUB6l35pwZytTD2sAytSlrtE56rgn1HiRuBJd9rTgyxH0rkAyVQDpOH9Wmfn5zw5L_wR38ti2X76563SzQQI0hG_HY0GTDEZT/s1600/Untitled.png" height="432" width="640" /></a></div>
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The objective of this trade is to structure a position that can be held for the next 70 days without purchasing call options and without using a vertical spread (bull-put spread). <br />
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Observing that contracts in May have a higher implied volatility than the rest of the summer contracts, you can sell the 160 strike PUT option expiring in May and purchase a 160 strike PUT option expiring in August, maximizing theta absorption. Opening such a position will leave you long the stock and allow you to collect premium. When opening and closing the trade you want to fill both legs simultaneously, with a close date on or before April 30, 2014. Exiting the trade is a bit delicate. Even if the stock rallies, you need to be prepared to close the position near $160. If you keep holding the position and the stock is at $170, you all of a sudden have lost money despite your directional prediction being correct.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiERqareHuuSQH3PaIM419GcAFBvUWh0hs1GT5beRqCL220a-F3W-cLrZNQMpuyRUA-wW1GfbK824j58MXcs-qKkYn0cLUHmf4HZ7bplu8bAI9d-_K4Kcz6ZodKuR7AbxBUrxr8y_ICnJB-/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiERqareHuuSQH3PaIM419GcAFBvUWh0hs1GT5beRqCL220a-F3W-cLrZNQMpuyRUA-wW1GfbK824j58MXcs-qKkYn0cLUHmf4HZ7bplu8bAI9d-_K4Kcz6ZodKuR7AbxBUrxr8y_ICnJB-/s1600/Untitled.png" height="276" width="640" /></a></div>
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Calendar spreads (and diagonal spreads) often have attractive properties. Anytime you are considering such a position, be sure to model it and check the greeks to make sure it offers the risk-to-premium you are looking for. Stay smart and trade safe!<br />
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<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-53868649527863781792014-02-19T09:24:00.003-08:002014-07-06T16:18:35.436-07:00What Are Option Greeks...And Why They Are Important<div align="center" class="MsoNormal" style="margin-bottom: 10.0pt; text-align: center;">
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<a href="https://www.blogger.com/blogger.g?blogID=1610059802893833897" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="background-color: white; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 18px;">Twitter@LoneStarQuant </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 11pt; text-align: justify;">In
any position, whether purchasing a CALL or entering a multi-leg trade, you can
estimate a set of risk parameters known as ‘option greeks.’ Each option contract
has its own collection of greeks which can be added arithmetically with other option
greeks that cover the same underlying asset. As positions become more complex,
traders pay close attention to these hedging parameters to ensure there is not excessive
risk from changes in underlying asset price, implied volatility, time erosion,
and interest rates. </span></div>
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<div class="MsoNormal" style="margin-bottom: 10.0pt; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: Arial, Helvetica, sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Suppose
you buy an option contract on SPY with a delta of 70. What does that mean?
It is actually really simple. It means that if SPY goes up $1, then
the value of the contract you bought will appreciate by $70, holding everything
else constant. Conversely, if SPY drops by $1, then the position value
will depreciate by $70.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">When
SPY moves $2, will your position appreciate by $140? No. This can be explained
by the second risk parameter commonly referred to as gamma. Gamma
measures how much the delta changes with movements in underlying asset price.
If gamma is positive, then you would expect a positive $2 move in the
price to benefit the position by more than $280 ($140 X 2). Once again
this was because gamma, the partial derivative of delta (second derivative with
respect to price), is positive.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 10.0pt; text-align: justify; text-justify: inter-ideograph;">
<a href="https://www.blogger.com/blogger.g?blogID=1610059802893833897" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="font-family: Arial, Helvetica, sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The
third parameter is vega, which is a measurement of the option contract’s sensitivity
to changes in implied volatility. This is important to note because a
change in implied volatility will directly affect an option contract price.
A positive vega means that your position will appreciate from an increase
in implied volatility, and a negative vega will appreciate from a decrease in
implied volatility. Buyers are long volatility (positive vega) and contract
sellers are short volatility (negative vega).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 10.0pt; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: Arial, Helvetica, sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The
fourth risk parameter is theta, which is the measurement of the option
contract’s sensitivity to daily time decay. It can either work for or against
you. Most inexperienced traders end up purchasing time premium from
sellers because they are hoping to hit a home run. However, selling premium (positive
theta) means that even if the stock stays flat you’ll still win as the value of
the position appreciates with time. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 10.0pt; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: Arial, Helvetica, sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The
fifth risk parameter is rho, which is simply sensitivity to interest rate risk.
Typically for retail traders, this parameter is ignored. There is more of an emphasis
on other parameters that impact day-to-day prices more consistently.
Below is a chart of the major risk parameters and how they are all
related. In order to have success as an
options trader, you’ll need to have an intuitive understanding of how the
greeks relate to one another.</span><br />
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<a href="https://www.blogger.com/blogger.g?blogID=1610059802893833897" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKUP___k-DFAKTn9AJelcKEfeeMNCC5LopAIrPjwR3sSSXwrEXrxx_FkGLcOeByE2YJIdFWEoVsSx1MGcBqjb2svv890ngbHZWB1fIS2g2aAioLtc0MRwgTgxfk5I4YJbGOj0n5O5blxqH/s1600/Untitled1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKUP___k-DFAKTn9AJelcKEfeeMNCC5LopAIrPjwR3sSSXwrEXrxx_FkGLcOeByE2YJIdFWEoVsSx1MGcBqjb2svv890ngbHZWB1fIS2g2aAioLtc0MRwgTgxfk5I4YJbGOj0n5O5blxqH/s1600/Untitled1.png" height="167" width="400" /></span></a></div>
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-81931160879586931292014-02-11T07:32:00.001-08:002014-07-06T16:18:47.414-07:00A Year Ahead: 2014<span style="background-color: white; font-family: Arial, sans-serif; font-size: 14px; line-height: 18px;">Twitter@LoneStarQuant </span><br />
<span style="background-color: white; font-family: Arial, sans-serif; font-size: 14px; line-height: 18px;">------------------------------------</span><span style="background-color: white; font-family: Arial, sans-serif; font-size: 14px; line-height: 18px;">-------------------</span><br />
<span style="background-color: white; font-family: Arial, sans-serif; font-size: 14px; line-height: 18px;"><br /></span>
<span style="background-color: white;"><a href="http://www.blackrock.com/corporate/en-us/literature/whitepaper/bii-2014-outlook-us.pdf" style="font-family: Arial, sans-serif; font-size: 14px; line-height: 18px;">Blackrock recently published</a><span style="font-family: Arial, sans-serif;"><span style="font-size: 14px; line-height: 18px;"> its year ahead report, providing insightful analysis of macro themes. Although equities were choppy the last couple weeks, research indicates that there is still room for equities to rally to new highs this year before further correction. </span></span></span><br />
<span style="background-color: white;"><span style="font-family: Arial, sans-serif;"><span style="font-size: 14px; line-height: 18px;"><br /></span></span></span>
<span style="background-color: white;"><span style="font-family: Arial, sans-serif;"><span style="font-size: 14px; line-height: 18px;">The banner below comes from BlackRock's report:</span></span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCOQRohQmwiBQIzIHblb5oaKwgKH5RPTPOw9IbxhIiUeAj8k3Tn7gCGxAQGF0rRO3QFoeFehCZxH1E3Rsc_PB388xszcRagivXUTfgXE8mqJBhVHfY0VdUmiS1p9bvRwY7YvaAnjkx911I/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCOQRohQmwiBQIzIHblb5oaKwgKH5RPTPOw9IbxhIiUeAj8k3Tn7gCGxAQGF0rRO3QFoeFehCZxH1E3Rsc_PB388xszcRagivXUTfgXE8mqJBhVHfY0VdUmiS1p9bvRwY7YvaAnjkx911I/s1600/Untitled.png" height="640" width="548" /></a></div>
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Again, from BlackRock</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhswG_A1ngZ_gg-6VNvxzRryYsUkpuAgjdk5wcDz1s5dfnr6KYvutn4mrX8thlIa3U-BDnnW2zhDKiKKbgkIMhMRy2HSv6OfRm0elJJE01QRLTceOz5XLbgJzoTTH92Lg5qSSvLIlsGeGJl/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhswG_A1ngZ_gg-6VNvxzRryYsUkpuAgjdk5wcDz1s5dfnr6KYvutn4mrX8thlIa3U-BDnnW2zhDKiKKbgkIMhMRy2HSv6OfRm0elJJE01QRLTceOz5XLbgJzoTTH92Lg5qSSvLIlsGeGJl/s1600/Untitled.png" height="640" width="580" /></a></div>
<span style="font-family: Arial, sans-serif;"><span style="background-color: white; font-size: 14px; line-height: 18px;"><br /></span></span>
<span style="font-family: Arial, sans-serif;"><span style="background-color: white; font-size: 14px; line-height: 18px;">With the VIX at 15 and equities approaching record levels, Europium Funds has removed its short position on the VIX (opened last week at 20) and is once again systematically looking for prime long/short candidates. </span></span><br />
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<span style="font-family: Arial, sans-serif;"><span style="background-color: white; font-size: 14px; line-height: 18px;"><br /></span></span></div>
Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com1tag:blogger.com,1999:blog-1610059802893833897.post-72166459906363873422014-02-10T08:47:00.000-08:002014-07-06T16:18:53.192-07:00A Conservative Vertical Spread on 3M<div class="separator" style="clear: both; text-align: left;">
Twitter@LoneStarQuant </div>
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3M is an innovative company that has evolved greatly over the past four decades. Interestingly, the stock has rallied following February 09 for twelve years in a row. Take a look below:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRhdHR94ktTKwvrwVFEt7sJhdCMWmM38NKfRpznpRwwp4TEjf0DkDsRUJZWcIgum17NX8A1SqswidgAg9WJQHKcNuIXA61BQjroxs3io28pOVnOAR222tRCeSB_lqdszYwj59qu2qnP2LT/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRhdHR94ktTKwvrwVFEt7sJhdCMWmM38NKfRpznpRwwp4TEjf0DkDsRUJZWcIgum17NX8A1SqswidgAg9WJQHKcNuIXA61BQjroxs3io28pOVnOAR222tRCeSB_lqdszYwj59qu2qnP2LT/s1600/Untitled.png" height="424" width="640" /></a></div>
Making the assumption that MMM is not going to depreciate over this same period in 2014, you want to structure a position that has a defined risk and benefits from premium erosion. Here is an example:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNQB61eQZ4zEoTqfofw6E7idltimwFuGXtfLzTcy7gGmDXdfsULDT0B15qLOucqVPnjQ09feHc_2BO-n8p-00Px8_gQmJ5DIk1IxGtWOxrhzdNEqevlGUZ_W9AYZ60cJcXPJWfTu5VUBZN/s1600/Untitled1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNQB61eQZ4zEoTqfofw6E7idltimwFuGXtfLzTcy7gGmDXdfsULDT0B15qLOucqVPnjQ09feHc_2BO-n8p-00Px8_gQmJ5DIk1IxGtWOxrhzdNEqevlGUZ_W9AYZ60cJcXPJWfTu5VUBZN/s1600/Untitled1.png" height="276" width="640" /></a></div>
Notice that the contracts expire in 67 days, which is approximately the duration of the seasonal pattern. With the spot price at $130, you can sell the April $130 strike PUT option and purchase an April $125 PUT option and collect the difference. If you were to sell 10 of these 'bull-put spreads' then you would stand to gain $1,900 and would be risking $3,100. In the event that the stock stays flat, you are still earning a few dollars per day in time (theta) decay. Stay smart and trade safe!Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-24343451034184341042014-02-07T03:49:00.001-08:002014-07-06T16:19:10.657-07:00Thinking About Seasonal Patterns for Trending StocksTwitter@LoneStarQuant<br />
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It is important to consider whether a specific equity is in an uptrend or downtrend. In the event of an uptrend, you would naturally expect the likelihood of identifying a long (seasonal) trade to be much higher since the stock has been moving in the same direction for several years in a row. When doing due diligence, check to see if a stock has been trending. Take a look at PCLN which rallies every February:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-RdOvmXWAPBf5BOul_uWuuA7q2vMDRX20vuPcmOFS5tp_7KB0zcGEMmkOBF1ib4DgtbWmiKJhFZ85ljDObWPoDlVEA35SZpvB6TxkyEWoFnkBlO0aQi8_owPc5QrVgUys1WL8ivk_03lS/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-RdOvmXWAPBf5BOul_uWuuA7q2vMDRX20vuPcmOFS5tp_7KB0zcGEMmkOBF1ib4DgtbWmiKJhFZ85ljDObWPoDlVEA35SZpvB6TxkyEWoFnkBlO0aQi8_owPc5QrVgUys1WL8ivk_03lS/s1600/Untitled.png" height="428" width="640" /></a></div>
An enormous uptrend.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-VOOzn8ZZEp1TWM5fX3-jHwzMFAmGkHvHkbzC02XpLP1AycFhQN1k11Yo0khNr2gpKh9U8cjK5kqwvrCZyMcq6-Z71Dxg-SjX9wj11VrG5sxXWOArygFjBrOvv9cAvPZNfeV_bYPM9O4s/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-VOOzn8ZZEp1TWM5fX3-jHwzMFAmGkHvHkbzC02XpLP1AycFhQN1k11Yo0khNr2gpKh9U8cjK5kqwvrCZyMcq6-Z71Dxg-SjX9wj11VrG5sxXWOArygFjBrOvv9cAvPZNfeV_bYPM9O4s/s1600/Untitled.png" height="232" width="640" /></a></div>
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When looking at time series data, it is decomposed into the following:<br />
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<ol>
<li>Trend</li>
<li>Seasonal</li>
<li>Cyclical</li>
<li>Irregular</li>
</ol>
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Priceline has benefited greatly from trend. As a result, it is not surprising to see the above seasonal pattern with an average move of 26.8% over 77 days. Be careful with these trade candidates, in many cases when a major trend breaks the seasonal component has a good chance of disappearing also. Stay smart and trade safe!</div>
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-87468641570494503442014-02-05T03:40:00.004-08:002014-02-05T04:00:52.996-08:00Take a Look at YUM! Brands and V.F. CorporationYum! Brands runs approximately 40,000 fast food restaurants in more than 125 countries around the world. Popular names like Pizza Hut, Taco Bell, and KFC are all owned by YUM, which have been expanding rapidly in Asia. The company is currently valued at 30 billion dollars, with 30x earning multiple. The company is a) not enormously expensive and b) priced for growth. More interesting, the stock has a perfect 16 year history of stellar performance during the 91 days starting February 5th. The average move over this period is a whopping 14.6%.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6gyW-NzFqCSHGAreskCo9qZ3KbRr6RmTdiXEQ0DDTvEQWN5z28WP05qWi5g9YiX5Lo4ePQ7-oYBSSgHyQtAmvJ06hPEr227aASc4chnGamLhtv2Z3MMrAlAeLnm8wPXevMMkZriCZS1RB/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6gyW-NzFqCSHGAreskCo9qZ3KbRr6RmTdiXEQ0DDTvEQWN5z28WP05qWi5g9YiX5Lo4ePQ7-oYBSSgHyQtAmvJ06hPEr227aASc4chnGamLhtv2Z3MMrAlAeLnm8wPXevMMkZriCZS1RB/s1600/Untitled.png" height="428" width="640" /></a></div>
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I hope you find the statistics above to be useful. To equate 16 bullish years to a coin toss, the probability of someone flipping heads 16 times in a row is .0015%. This anomaly in YUM's stock price should be noted. <br />
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Another great play is VFC. Take a look at this amazing history:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZWZkrjrWLoRpizCGyVRYxPM_oiMx4r_bpfCq4TUIIFK76gdc_gr6zgqPj_X6Fy6nafeCgMaUkZoJ6tOFo7hTL-RTz6aMVnk-pomL8dZTqA8zEBXHl9esAnXm1ity-_Za1RJnwotAgfNrv/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZWZkrjrWLoRpizCGyVRYxPM_oiMx4r_bpfCq4TUIIFK76gdc_gr6zgqPj_X6Fy6nafeCgMaUkZoJ6tOFo7hTL-RTz6aMVnk-pomL8dZTqA8zEBXHl9esAnXm1ity-_Za1RJnwotAgfNrv/s1600/Untitled.png" height="428" width="640" /></a></div>
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Stay smart and trade safe!<br />
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-56187572491765729812014-02-03T00:13:00.003-08:002014-07-06T16:19:37.996-07:00Taking Control in the Midst of Uncertainty Often correlated with equity prices, copper futures took a tumble alongside global index futures overnight as Asia's markets opened. China's PMI numbers were in line with analyst expectations at 50.5, but acted as a further catalyst for selling, pushing European index futures down .5%. Meanwhile, gold prices elevated this past month, which happens to be the first time since August. During uncertain times, investors take a flight to safety in gold, which also happens to be behaving seasonally. In fact, February tends to be a quite strong month, and March - April are historically weak.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhafidkW6hAoS9rcBuYlhbqcBEabcK5rPvZtLVVQtO1C6jErNYq6syEBIWUfLm_NJvRvqqojF_Z39GMDSAdKtLKXCgKx3aKA5JcSLBLnBjkmTuSg6mY3IQr2sDcpalRN296_sHEz9JFcOr7/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhafidkW6hAoS9rcBuYlhbqcBEabcK5rPvZtLVVQtO1C6jErNYq6syEBIWUfLm_NJvRvqqojF_Z39GMDSAdKtLKXCgKx3aKA5JcSLBLnBjkmTuSg6mY3IQr2sDcpalRN296_sHEz9JFcOr7/s1600/Untitled.png" height="444" width="640" /></a></div>
Other indicators of fear such as the VIX are exceeding median levels. Below is a histogram and density function VIX using daily prices for the past 5 years. Currently the spot VIX is at 18.60.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoImZtCjL2d-g2IQsKXgB0hng7zE5c_EcIsgd6ig4qfOyAv-ejRQfSepnB5hEjTbP1ov21vvg_okRfXLH1Xn8phmNNe2ujzBrlXhoTwTWlVr9gXH6IDBJnv6BkxIhOAOH4sqh1QD40hmJD/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoImZtCjL2d-g2IQsKXgB0hng7zE5c_EcIsgd6ig4qfOyAv-ejRQfSepnB5hEjTbP1ov21vvg_okRfXLH1Xn8phmNNe2ujzBrlXhoTwTWlVr9gXH6IDBJnv6BkxIhOAOH4sqh1QD40hmJD/s1600/Untitled.png" height="446" width="640" /></a></div>
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If you are looking for a way to play the rise in volatility, you can start shorting VXX leaps as the VIX futures curve flattens out. If you are looking for a couple good opening trades for Monday, take a look at Allstate, which has rallied 17 years in a row over the same 91 day period.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzaWbMR28mFKlhlaOyheAR6LorZ7aiyD0o1wUFlikotZ35zU0w65VIqOrIbXOEMxW5jKv6LGF7Isjf0mvbxLn3iAVv1ZEaM7l8UbT5fHkHCcumEAhH9PH0G3hMm34iR47FmVe91nRZZI4_/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzaWbMR28mFKlhlaOyheAR6LorZ7aiyD0o1wUFlikotZ35zU0w65VIqOrIbXOEMxW5jKv6LGF7Isjf0mvbxLn3iAVv1ZEaM7l8UbT5fHkHCcumEAhH9PH0G3hMm34iR47FmVe91nRZZI4_/s1600/Untitled.png" height="436" width="640" /></a></div>
Stay smart and trade safe.<br />
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<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-74465749637043391752014-01-28T08:50:00.002-08:002014-07-06T16:19:52.383-07:00Taking a Visit to No Man's LandLast week we discussed the importance of waiting during uncertain times. For those that waited, you are probably relieved to see equities down 5%. So what now?<br />
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We are in 'no-man's-land'. What does that mean? We stepped away from our highs and there is no telling where the next month will take us. Why would you want to speculate the direction of the market when there is little conviction that equities will rally or sell-off?<br />
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The S&P500 is below the 20 and 50 day moving average. With that in mind, I am preparing to sell volatility at the right time. I am also looking into the following trades.<br />
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Long YUM:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6-TY5PC-QORJ81DDVov9SDSnVQmBTpZhVxH7d3SOcB78vGUdc8voP3QaAKVEE-SXUfENGRzVuFWcQAIQWs-WxlG4wh8rsMleiN6ygfFMwrYG1YlKX6WDwRMTRsAmp8awNNTF7Pi67nqSM/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6-TY5PC-QORJ81DDVov9SDSnVQmBTpZhVxH7d3SOcB78vGUdc8voP3QaAKVEE-SXUfENGRzVuFWcQAIQWs-WxlG4wh8rsMleiN6ygfFMwrYG1YlKX6WDwRMTRsAmp8awNNTF7Pi67nqSM/s1600/Untitled.png" height="428" width="640" /></a></div>
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Short KEP:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiI1VIgEtCM7K9h-5wiqJVP90Ntg99VTjD5yp8gxh7G9Bw5i7hZ8caSpDBt4trrUpuePGSusBiQOfTlNjHX0MpfuyzxSVBmrK7oAchw3Y3jWtJa8dA5qka-cxJj08DTz3Lg6wU7cUl_Q-Zm/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiI1VIgEtCM7K9h-5wiqJVP90Ntg99VTjD5yp8gxh7G9Bw5i7hZ8caSpDBt4trrUpuePGSusBiQOfTlNjHX0MpfuyzxSVBmrK7oAchw3Y3jWtJa8dA5qka-cxJj08DTz3Lg6wU7cUl_Q-Zm/s1600/Untitled.png" height="428" width="640" /></a></div>
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Stay smart and trade safe!<br />
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<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-32448508201449417582014-01-24T05:20:00.001-08:002014-01-24T05:21:35.734-08:00Remaining Market NeutralBy Jon Haghayeghi<br />
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After a weak month (with index futures down .75% before the bell) it is particularly important to shift toward having a market neutral portfolio. As a result, I am looking for trades that are 91 days out that are bearish to match the 'deltadollars' I have long. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUlZ3oawt_dn6jIJGKeZmNd9AK7-Mf6ZEN1Rt_JUhThp6t_g-U35mq9L-wsSMZsGzm-TOcoYq0AoMxQsSjh9PE0Vz5QfKpF8fyDv_FuNdqT_CKWMsMUxQwhUnU2RVhQ8qitadoQCY4A3nE/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUlZ3oawt_dn6jIJGKeZmNd9AK7-Mf6ZEN1Rt_JUhThp6t_g-U35mq9L-wsSMZsGzm-TOcoYq0AoMxQsSjh9PE0Vz5QfKpF8fyDv_FuNdqT_CKWMsMUxQwhUnU2RVhQ8qitadoQCY4A3nE/s1600/Untitled.png" height="432" width="640" /></a></div>
I will be selling call options on a few candidates above to get my negative exposure.<br />
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Is this the start of a major correction or is this minor capitulation? I am not sure, which is why I am market neutral and looking for opportunities in the event of a volatility spike. When volatility spikes then I can sell premium at an attractive rate and make higher probability trades. It also opens the door for powerful VIX trades. Stay smart and trade safe.<br />
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<br />Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-51059374813063333942014-01-22T10:00:00.002-08:002014-01-22T10:01:46.818-08:00Selling a vertical spread on VFC<div class="separator" style="clear: both;">
One of the strongest signals from our database comes from VF Corporation. The stock has rallied 13 years in a row for the quarter following mid-to-late January. Take a look below:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwR1j2kuGkYiEk9neNpPjdi5CzVtHJajzHLoktUb8mcrdfINkD_T7B9sB0RYnwAjLTq9JUR1DAiGeNFXSCCgwLonERScBt4slWl_Biuly7TRFztLjn_zwb6pgan3ovNG7xW2OpCeVo5vo/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwR1j2kuGkYiEk9neNpPjdi5CzVtHJajzHLoktUb8mcrdfINkD_T7B9sB0RYnwAjLTq9JUR1DAiGeNFXSCCgwLonERScBt4slWl_Biuly7TRFztLjn_zwb6pgan3ovNG7xW2OpCeVo5vo/s1600/Untitled.png" height="435" width="640" /></a></div>
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If you were interested in structuring a position using options, take a look at the model below! </div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga2KkitEXoutB4oKlqVsznQn9dz9AK6T-q6ILct3-v2Yqx0td0fliEVLohO6Mh1d7qyySvWnCa9bqiirlJTzw42zaPQuPKCFpoJGhQT9Jqlalpf7A6XiV16FdJELDKMNcEHiGL6KitkEg/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga2KkitEXoutB4oKlqVsznQn9dz9AK6T-q6ILct3-v2Yqx0td0fliEVLohO6Mh1d7qyySvWnCa9bqiirlJTzw42zaPQuPKCFpoJGhQT9Jqlalpf7A6XiV16FdJELDKMNcEHiGL6KitkEg/s1600/Untitled.png" /></a></div>
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The position benefits from time and is profitable as long as VFC does not depreciate over the 91 days. You win even if the stock stays flat. The max gain is $800 and the max loss is $1700 - the position should be closed on 4/22/13. Stay smart and trade safe.</div>
Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0tag:blogger.com,1999:blog-1610059802893833897.post-31947028867568422592014-01-16T07:24:00.001-08:002014-01-16T07:55:27.083-08:00What is going on? Is this a market top?<div class="MsoNormal">
To determine whether a market top has been reached, one
would have to correctly aggregate the beliefs of all major players in the
financial markets and process them through time - this is impossible to do. To
complicate things, data points are sending mixed signals and asset prices are
hovering near 5 year highs. <o:p></o:p></div>
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<span style="background: white;">This morning, jobless claims
decreased by 2,000 in the United States.
</span>Yesterday, t<span style="background: white;"></span>he IMF said that the global economy should strengthen in
2014, but growth is also "too low, too fragile and too uneven."
<o:p></o:p></div>
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<span style="background: white;">Should you sell your long
positions? What about sitting back and observing? What is everyone else
doing? As time elapses, these are the questions you will
never have a perfect answer to. <o:p></o:p></span></div>
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<span style="background: white;">Whatever your investment
strategy, do not be afraid to watch – sometimes sitting on the sidelines allows
you to identify the most ripe opportunities. Here is a Seasonal trade for January 16th. Stay smart and trade safe.<o:p></o:p></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcTGYkqkx0m5mgcYGPxktPQpjkmsDPOW-6e0Thb0z8KgBqSpR31Bw16mKfzKIdMqmI0eRzLdT0zt5eDJr_7VvQtc89X43FQa6SowENyQan70hNUfgSWsK0AlUJQHhjwDh50U-gHVhCBgRh/s1600/Untitled.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcTGYkqkx0m5mgcYGPxktPQpjkmsDPOW-6e0Thb0z8KgBqSpR31Bw16mKfzKIdMqmI0eRzLdT0zt5eDJr_7VvQtc89X43FQa6SowENyQan70hNUfgSWsK0AlUJQHhjwDh50U-gHVhCBgRh/s1600/Untitled.png" height="428" width="640" /></a></div>
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Jonhttp://www.blogger.com/profile/13497772076999800637noreply@blogger.com0