LNKD Update and the Future of Bflakaz Trading Log

The LNKD position is halfway to expiration... I've been in it 3 weeks and have 3 weeks to go. Here's an updated chart:

The original trade was a bear call spread with 225/230 as the strikes for 1.40. This entire week LNKD has been trying to chug past 225 but has been running into some resistance. It's STILL reading as overbought on the RSI and had a negative MACD cross this week, which is typically a sell signal when the RSI > 70.

On the 25th I converted the spread to an iron condor, selling the 200/205 put spread for 0.70. The trade isn't a profit-seeking trade anymore, it's a loss-reducing one. By converting this to an iron condor I was able to take in more credit without taking any additional risk. Already the losses on the trade have been nearly cut in half, even though LNKD has done next to nothing this past week. In the last update, the trade was down
-$200, and now it's down -$108.

Next week if LNKD moves higher or remains stagnant, the puts will have to be rolled up, again allowing me to take in more credit. What I expect to happen is a small pull back to the 215-218 area which will allow me to exit the trade near unscathed. It just seems a little tired to me, so a breather will be required before continuing past the next area of resistance at 230. Fortunately, theta will begin to take its toll on option premiums next week, which will work in our favor regardless of where LNKD moves.


As for the future of my trading, it's going to be light. This semester is going to be "labor intensive," so I won't have as much time for proper analysis and execution of trades. This year has already been immensely profitable compared to last year, so to me there's no rush to get back in.

In addition, the markets right now are... well boring. There are no stocks on my radar that meet criteria for trading in my methodology, and stocks are unsure of where to go. While S&P 2000 is technically meaningless, it has a psychological effect. We've come so far, and the only thing that participants say will take us higher is the fact that rates are going to remain low. That doesn't sound enthusiastic to me, so we will probably churn higher until inevitably another mini sell off comes and everyone succumbs to BTFD again.

Abenomics is failing in Japan, ECB is about to unleash QE, US housing is struggling... the world economy looks awful, and yet here we are. While I'm not bearish on stocks right now, I don't see any reason of owning them way up here in the nosebleeds. Sure, they will probably go higher, but at what risk? SPX may reach 2100 by the end of the year, but it was quite a long fight to go from 1900 to 2000, unlike in 2013 where every other month was another 100pt move. Not only is complacency rampant in this market, but so is apathy. Unfortunately, I care too much!

August 23 Weekend Review

It's been two weeks since I put on the latest 3 trades in Z, TSLA, and LNKD. I'll review how each one went.

First up, Z

Point and shoot trade... entered when Z was at the 50MA, which has proven strong support for Z over the past 6 months. Targeted the area where I believe it was oversold, though no indicators showed that, at 145.
Total Profit: 200(1.45) - 200(0.55) = $180 +62%


Next, TSLA

Point and shoot trade... entered when TSLA was approaching its ATH resistance, marked by the upper red line. TSLA confirmed ATH resistance twice, sold off to gap fill, marked by the lower red line.
Total Profit: 200(1.67) - 200(1.15) = $104 +31%


And lastly, LNKD

I'm still in this trade, SEP14 225/230 calls... I was a little early as LNKD was still quite a ways from resistance. They've increased in price substantially, and I'm a bit in the hole right now, -$200. I was pretty sure this thing would roll over to 210, the bottom red line, after confirming the first resistance line, the middle red line. Today was most likely a short covering rally, as volume steadily increased through the day. One might call today a clean breakout... I call it a blowoff. That's because LNKD is still massively overbought, with and RSI reading of 81.65 and 52 week high MACD values. What comes up, must come down. Next week I will be looking to form an Iron Condor to reduce losses if LNKD continues to defy gravity.

Next week will be important for the markets overall. SPX has rebounded from that messy tumble completely, but is having a little difficulty pushing past the previous ATH resistance. As I've stated before, even though I was expecting a sell off, a full on correction is not going to happen. There are too many kool-aid drinkers that are keeping the BTFD train chugging. If stocks fail to break that resistance next week, then LNKD may finally pull back a little.

The dog days of Summer are almost over, and while I still believe that stocks are very overvalued, the market will continue to churn higher. SPX WILL break 2000 soon enough. Though that's arbitrary, maybe it will finally be the last umph before we inevitably come tumbling down the mountain.

The key numbers to watch in the coming months will be PCE and CPI... employment numbers at this point are meaningless. We passed the unemployment % threshold for a rate hike months ago. If market participants think that higher CPI and PCE numbers may cause the Fed to hike rates sooner (THEY WON'T), then we may finally get a meaningful pullback, not necessarily a correction. Also, keep an eye on the VIX floor around 10.30. It has jumped off that floor three times, triggering stock sell offs.

New Trades!

Schools's out for two weeks, so now I have a little time to do some more trading!
As always, using my methodology of overbought/oversold and support/resistance, I spotted 3 stocks: TSLA, Z, and LNKD

TSLA

TSLA is testing it's ATH resistance level. It's overbought on all the indicators I use: MACD, RSI, W%R. The trade is -2 SEP14 270/275 call spread @ 1.67. I plan on taking profits between 25% - 50% of the credit. I think that overall market sentiment has changed over the past week, and that investors will be leary before pumping up TSLA above those previous highs... the sell off afterward was quite violent, and nobody wants to be a bag holder this time around!

LNKD

Looks about the same as the TSLA chart, right? LNKD is rampantly overbought, with an RSI reading above 80. Also, notice how volume has been steadily decreasing after that huge gap up while the stock has been steadily increasing. That's not a supportive sign. So, same strategy! -2 SEP14 225/230 call spread @ 1.40

**If either of these stocks meaningfully break through those resistances, then I'll look to get out. To me, that's an unlikely event with the way the markets are right now.

Z

A little while back, I went long Z shares as it was bumping along the 50ma, which has been proven as strong support. Last time, it worked very well! This time I'm playing the options. Since IV is so high (60+%), I could sell a put spread a little farther away from the market and still get a pretty good credit. -2 SEP14 120/125 put spread @ 1.45

**The risk in Z stems from the sell off that happened right after that huge rip. RSI is at levels that have shown strong support since March. If Z meaningfully breaks below the 50ma... then look out below! I'll be looking to get out... or use some non traditional trading strategies to invert the position.

After the success of my last call on the market, I'm trying not to ride a confidence high.

Since these trades were made on Monday, here's a quick P/L of how they're doing:

• TSLA: in @ 1.67, current @ 1.65, profit = $4
• LNKD: in @ 1.40, current @ 1.50, loss = $20
• Z: in @ 1.45, current @ 1.40, profit = $10

You Got Served... Bflakaz was right once again!

As anyone who has been reading this blog in the past month knows, I've been pounding the table saying that stocks were vulnerable and due for a correction, or at the very least a pullback, since late June. Well, well, well... look at what has just unfolded!

All of June AND July's gains were wiped out... WIPED OUT... in a single day. What sent the markets into a tailspin yesterday? An Argentinian debt debacle / default and new concerns over a major European lender, Banco Espirito Santo.

While Q2 GDP was pretty good, coming in at 4% and above the 3% consensus, the economy still only grew by 1% in the first half of 2014. Now when they calculate GDP for a quarter, the reported number is at an annualized rate. If you take the last four months of CPI data, i.e. over the same time that the economy was snapping back from that harsh winter, inflation is at an annualized rate of over 4%. If the trend continues, all eyes will (as if they already weren't) be on the Fed. Will they hike rates sooner to combat inflation? Or will Grandma Yellen say, "We could use a little inflation to really get this recovery going, therefore no rate hike." I believe the latter is more likely, since I've said before that nobody can afford higher interest rates. If they do pull a huge Bernanke and raise rates to combat rising inflation, then it's all over, just like it was in 2006. Ironically, there has not been a rate hike since 2006.

It's also important to take note on the overall atmosphere of the markets... complacent and worry free. Let's take a look at my time stamped tweets on StockTwits: @Bflakaz

Complacent and worry free was the EXACT attitude of the markets in December of 2007, right as shit was really hitting the fan! Now it is important to say that this time is different, since there is no banking crisis about to unfold... unless you look at Europe. But it's also important to say that this time isn't different: The FOMC cannot prop up the stock market. They can't lower rates, and if they unleash QE 4 than it will be just like any 4th movie in a series... overdone, unsatisfying, insignificant, and universally hated.

TAKE THAT NAYSAYERS
AND THIS
AND A LITTLE OF THIS

Sincerely,
Brandon

About that Weekend Review...

On Sunday (scroll down a bit) I posted my nest two trades: TWTR and Z. Both were at strong looking support points. For TWTR, it was a point-and-shoot trade, meaning everything went according to plan; support holds, rallies back up to 20MA, close position. Z on the other hand...

Well, that escalated quickly. Rumor has it that Zillow and Trulia are in merger talks. There is no proof of that, but CNBC was apparently pumping it all afternoon and an immense short covering rally took hold. I had gotten the alert that Z hit its 20MA, the baby blue line, and the next thing I knew the sucker was at $150. I sold out all eight of my shares at 151.67 after buying them Monday at 125.23, making a $211 profit. I'll take that! What luck!

As to what I think about the rumor... it's a rumor. And it doesn't look like many people believe it. In fact, the Z chart looks very similar to what happened to the 3D printing stocks (DDD SSYS XONE) a couple weeks ago:

Some news came out that day of the huge wicked candlestick that Home Depot was going to start selling 3D printers in stores... or something, can't remember off the top of my head. The reason both stocks rocketed was because they have high short interest - people think they're valuations are stretched, to put it lightly. So while it shot up initially, people started shorting and selling again once the "news" set in and things calmed down. DDD SSYS and XONE all sold off considerably in the following weeks.

Do I think Z shares the same fate? No. Z has been in a strong uptrend while the 3D printers have all been in a downtrend and have reversed 40-60% off their highs. But I definitely would not trade Z at these levels, it's too risky: if there really is a merger going through, Z will hit $200. If not, Z will sell back down to pre-rumor levels, $120 ish. I'd rather observe what plays out from the side lines.

July 20 Weekend Review

Bflakaz Weekend Review

July 20, 2014

Recap of Previous Week's Trades

• VIX +10 11/12 SEP14 call spread @ 0.50, out @ 0.95, profit = $450
• AAPL +1 92.5/95 SEP14 put spread @ 1.20, out @ 1.35, profit = $15
• FCX +4 37/38 SEP14 put spread @ 0.45, out @ 0.40, loss = -$20

Management of Current Positions

There are no current positions.

Trade Setups for the Upcoming Week

TWTR

TWTR current IV is around 60%, making it a candidate for credit spreads, not debit spreads. They report earnings on 7/29, next Tuesday, after the market closes. TWTR has good support at the 35 area, and also has found support on that bottom BB recently. It looks like it could be making a double bottom and will head higher to perhaps 39.2X, where the 20sma stands. Additionally, TWTR should found strong support at the 50sma on Friday. Here's the trade: Sell AUG14 34/35 put spread for 0.39 (as of writing)

Z

Z is selling off a little right now, but it's bumping on the bottom BB and approaching the 50sma, where it has found good support numerous times. One could argue that it is forming a head-and-shoulders pattern, but I wouldn't back that up. Those patterns tend to have "longer durations," i.e. the heads and shoulders form over a period of weeks, not days. This name has horrible liquidity in its options, so I'd rather buy a few shares.

Wait a few days... just to make sure support is found and its not a h+s.

VIX Home Run: Anatomy of a Trade

Roughly a month ago, I rebooted my entire trading methodology to include risk control, essentially structuring myself like a hedge fund. It's not entirely finished - the Long Term Invesntment (LTI) and Iron Condor (IC) sectors have not been booted up. It's only been a short while, but the Short Term Trading (STT) sector of the "book" has been doing pretty well, especially after this last trade!

The trade (that will probably be the best of the year) went a little like this:

Here's a daily chart of the Volatility Index (VIX), as seen on July 16:

That orange line is the "floor" on the VIX. it has rallied hardcore every time it nears that floor. The previous time was only a week before when it jumped from just under 11 up to 13 and change. So, I'm thinking it will probably do so again. I chose options that expire in September, as to not suffer from the "death by a thousand cuts" of Theta decay. I also figured that the risk/reward was pretty good, as the floor wasn't too far away, and VIX probably would not penetrate it.

So I bought 10 of the SEP14 11/12 put spread for 0.50, risking $500, or 2.5% of the total STT capital. When analyzing on the new brokerage software, at 13 and change, the previous high, the trade would net about +20%. Not bad. What happened next was kind of total luck...

The VIX skyrocketed 40% higher the next day as the markets sold off on news of the Malaysia Air flight that was shot down over Ukraine, which may or may not have had US citizens on board.

I was at work and was unaware this had happened until about 3pm. I checked my phone and was absolutely elated! (Not at the deaths of innocent people, obviously) I took a look at my VIX position, up $450 and just sold out immediately. What a return, 90%!

That leaves the total profit on STT at $666.15 (oh God!), or +3.33% in about 3 weeks, with an accuracy of 70% (7 winners, 3 losers).

As of now there are no open positions in STT. I'm looking at some new opportunities, but that's in store for the Weekend Review