Black Thread

Discussion in 'Trading' started by riskfreetrading, Mar 16, 2008.

  1. I noticed so many threads about black this, and black that. So why we do not create just one thread for all the black calls right here. By the way why call such days black only. Why not white/read/yellow/however? The other colors can also be devilish.

    Now let me tell you what I think about the market. I think we are in a bear market, everyone who says otherwise is in denial. A bear market takes time to resolve itself (typically 2 years to reach the bottom). Let us assume that the bottom for the market, as a whole, is 50% from the the latest top.

    If I take IWM (russell 200 ETF which the one I mainly trade), the all time top was around 85 something. 50% of that is around 43. We have go down about 25% from the top. This took place in around 6 months. This is in accordance with the behaviour of the stock market price, that is half the move happens in a quarter of the time (25% in 6 months which is 1/4 of 2 years).

    So the first leg of the bear market is done. There will still be legs 2 and 3 (3 being the final one, and in which there is the absolute surrender of the champions of all backholders). Those legs should take place over the next 18 months.

    As I indicated in my thread of live trades of last Monday (Monday March 10?) I think we are at a short term bottom. The reward of the short is not worth the risk. That is why (see the live trades) I closed all my shorts, and built a small long position, which I closed on the close of Tuesday. I did some shorting on Wednesday (see my live thread of trades on Wednesday March 12?).

    The behaviour of the market on Friday is in my view very strong. I took note of the high volatility (not of the OTM puts), but the high volatility of the OTM calls on IWM. Implied volatility is real money, and I cannot ignore it.

    Currently, I recovered my shorts of Wednesday on morning Thursday, and I am currently on the sideline waiting to see what happens.

    If I have to make a prediction, I would see range bound and possibly an upmove to 70 for IWM in the near future. As for the short case, I will not short now until I see a bounce up that would make the reward to risk ratio appealing.

    Good trading!
  2. The recent announcement of fed cuts/etc explains the high call premimum on OTM calls. I hope that you know understand that options tell something of vital importance.

    OTM call premimum is real money telling us a hurricane is about to hit shores and the market is headingup. Some people maybe in the know, and they load up.