Day Trading Thoughts For Mon. Apr. 20

Discussion in 'Trading' started by erikrkolodny, Apr 20, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    On Friday, as I do every 3rd Friday of the month, I frequently noted the phrase “options expiration today…careful” to anyone who asked me about scalp trades. Without going into an esoteric and ultimately boring explanation as to how options work, the 3rd Friday of the month are when all American-style current month options expire. An option holder must decide that particular day whether to exercise his/her option contracts or let them expire. Typically, weeks of options expiration tend to be somewhat more volatile than normal as options players position themselves for the expiration, but Fridays of expiration week tend to be relatively slow in normal trading markets because most of the options activity is taken care of by Friday morning. Thus, we get days like Friday where the pace of trading is oftentimes frenetic in the early going (on Friday, I for one had my first sizable position at 6:32AM), but did not trade much whatsoever from 12PM-3:30PM. Most traders who do not trade accordingly in that time schematic tend not to do well on the 3rd Fridays of the month. The other trick of the day is that big volume options contracts tend to occur at round numbers and the middles of said numbers…usually, a stock priced at 30 tends to have big volume options contracts at 30, 27 ½, 25, 32 1/2 , and 35 as a for instance. When a stock approaches those numbers, the options players tend to keep the movement of the stocks in place. For instance, X traded within 1% of 30 most of the day, GE closed near 12.50, LVS hovered around 5, FSLR around 145, and so forth. Thus, it makes the game of breakouts and breakdowns via trading on momentum a bit harder as stocks tend to be a little heavier just above and below major strike prices. In short, the two lessons to impart here are: be aware that options expiration sessions tend to be very busy early in the day yet very slow thereafter in normal circumstances and have a rudimentary understanding of the fact that equity prices can tend to be pegged close to major numbers on the 3rd Friday of the month.

    Overnight, markets in Asia were quiet and mixed with Tokyo down a little under 1% and Hong Kong up 1%. The situation, however, deteriorated rapidly as we Americans slept with oil prices decline and European bourses tumbling down about 2% plus as of this writing. Late last night, the “Financial Times” out of London reported that a senior government official wants strong banks to only repay bail-out funds only if as part of the stress test being proposed, said returning of the money must be in ‘the national economic interest.’ Also, Obama’s top economic adviser was on “Meet The Press” that repayments could provide further resources to help the weaker banks, but was noncommittal on the London FT rumor. Add to the mix BAC was out this morning with options expiration behind us and instant recipe for downside soup. As people trudge back to their offices after many were on vacation last week, look for a relatively slow day with much of the great action having already occurred before 8AM ET when BAC came out, but one that should stick to the downside in a very choppy manner all day.

    Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
    If the whole story is not there -
    If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-

    Good- The following stocks have good news and/or a strong technical pattern

    DFR – continued its recent run; closed near a high

    AOS- warned on earnings last Thursday night; closed well lower but near a high

    CYT- warned on earnings last Thursday night; closed well lower but near a high

    SCON- closed near a high

    CMED, NCTY- two Chinese speculative plays that closed near their highs

    MR – closed on its high

    CVO- closed on its high

    LLY- good earnings

    DNDN- positive detail on its recent drug news release at the American Association of Cancer Research conference over the weekend

    JAVA- being bought out by ORCL for 9.50

    LZ- pre-announced to upside earnings-wise

    BAC- beat guidance handily, but may be a case of ‘buy the rumor, sell the news’ particularly when taken in combination with the FT report.

    Bad-The following stocks have bad news and/or a weak technical pattern

    ETN- terrible earnings

    HAL- bad earnings

    PEP- beat pre-announced earnings, but buying out its bottlers PAS and PBG

    MMR- poor earnings

    ORCL- acquiring JAVA as noted above, but may well be taken as a negative for ORCL today because of the cash outlay







    Good luck today.

    Erik R. Kolodny