OPEN: USO Calendar

We had a great discussion at our trading team meeting last night regarding calendars, when to use them, where to use them, and why.  As a continuation of that meeting and my previous post I am going to build a position in USO using a triple calendar and I will be posting my adjustments and exits.  Feel free to papertrade along with me.

Here’s the initial position that I will try to get filled today:

I went another month out on the long side to April because it was relatively cheap and there was a huge volatility skew between Feb at 83% and April at 74%.  I also ratio’d the calendars with 1 at the middle, 2 at the top, and 3 at the bottom to give us a nice flat profit line at expiration.  I’m keeping this at half my normal size to allow me to keep some dry powder for adjustments.

Stay tuned!

Mojo

Popularity: 26% [?]

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Oil, Oil, everywhere – How can we make money on it?

Internal to our trading team we are having a good discussion on calendars.  How they work, how do you select a good candidate, how do you adjust.  It really good to have new folks come onto the team because they often ask questions that are ‘already settled’ and usually will uncover some subtle (and non-documented) changes.  With all of this mind I propose that we select oil as the underlying vehicle to setup calendars on.  Why?  For a few reasons:

1. Oil seems to be the most vexing to the “experts”.
2. USO (and oil related ETF) is liquid and has dollar wide strikes.
3. The price of USO is above $20 (currently at $29) which is my minimum price for a good calendar.
4. USO has been trending down nicely for a while and is only just starting to build a basing pattern.

Here’s the chart:

I’m open to other ideas and candidates so fire away.  If not, we will go over the construct and reasoning for the initial position at tonight’s trade team meeting.

Have a good day!

Mojo

Popularity: 19% [?]

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Monthly Report for Dec & Jan +2.7% / -1.0%

As I was preparing my January monthly report I realized that I hadn’t sent out my December report.  So I’ve decided to combine the two.

December went well for me coming off of my forced vacation in November.  Sideways, vega positive trades did the best and the holidays treated me well earning +2.7%.  January was a bit different because I carried over my vega positive trading into the month and got zapped a bit with the huge volatility crush that came along.  On a good note, I kept my head on straight, didn’t panic, and managed to keep my losses to -1.0%.

I continued to trade small and kept my cash in the market limited to no more than 10%.  As we getting close to post-inauguration and more volume coming into the market I will likely step in some additional cash bringing my total at risk to 20%.  I will hold there to insure I don’t crack under the pressure and a bat-shirt crazy!

Trade Record Dec

15 trades, 9 wins, 6 losses = 3-to-2 win / loss ratio
avg $ per win: +664.56 avg $ per loss: -724.00
avg % per win: +17.3% avg % per loss: -17.0%

Trade Record Jan

15 trades, 4 wins, 11 losses = 1-to-3 win / loss ratio (OUCH!)
avg $ per win: +571.88 avg $ per loss: -254.41
avg % per win: +12.1% avg % per loss: -11.5%

In January you can see how my small trade size as I came in to test the waters help me avoid big losses.  4 wins to 11 losses is impressive!! (NOT!)

In reviewing 2008, I had goals that I accomplished but most I did not.  I’m going to sit down and really think hard about what I want to get done in 2009.  Its going to be a tough year for the everyone and I want to stay focused on what’s important.

Feel free to send me any suggestions you have or share you own goals for the year!

All the best,

Mojo

Popularity: 19% [?]

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Still Calling for the Dow to Reach 5500

I’m really surprised and a bit disappointed in the market action on Tuesday.  Now, don’t get me wrong.  I’ve stated several times that I’m long term bearish but I expected a little more market support from the Obama effect before the realities of our situation set in. Since I wrote the last update on the Dow and where we were headed (see ‘About to Break‘) we’ve dropped another 600 points in just five trading days.

Frankly, I expected the market to hold up until after everyone realized that even as good and effective as Obama might be, one man (even the President) is not going to be able to save us.

Take a look at this chart:

You can see we are still in the channel we drew several weeks ago.  Albeit we are sitting on the bottom support a sudden reversal in the MACD histogram with an increase in volume usually tells me that we are going to get some follow thru.  If that happens and we break the channel things will get nasty quickly.

That six year low of 7500 is not too far away.

Mojo

Popularity: 22% [?]

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Markets Closed for MLK

All US markets are closed today in observance of MLK.  Since I’m the new guy and its supposed to snow tomorrow I decided to come into my office and get some ‘catch up’ work done.

As a sign that I’ve been locked in cubicle land a little too long I finally decided to start decorating.  My first stop??  Yep, you guessed it.  CHA-CHA-CHIA!  It was half price post Christmas and my wife got it for me.  As an experiment I wanted to see if it was even possible to support any life in this office (no sun light) and set about a graduate study level program on Cha-Cha-Chia! germination and care.  After several years of intense study (ok, 2 hours of internet searching) I constructed a small tererium from some scrap plastic and got my KungFu Panda (I don’t care if you don’t have kids you should go see this) to sprout.  That was a couple of weeks ago and my office mates often come by to check up on the Cha-Cha-Chia!  (Its even rumored to be lucky since I finally got some movement on my new clearances once the Panda arrived!).

As my way of celebrating the holiday, I also decided to send my Cha-Cha-Chia! pet on a sun filled holiday vacation.  Here it is:

Sure I know its just a small desk lamp on a colleges desk but for a Cha-Cha-Chia! that’s a big deal!

Mojo

Popularity: 20% [?]

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Am I a Republican?

After my recent post about my Honda Hybrid and my new obsession on gas mileage one of the readers in our forum asked:

“…what beliefs do you hold that makes you a Republican? It seems like you are in line with the Democratic party more than the Republican.”

Its a good question and one I struggle a bit with.  I’ll tell you what I believe and you can decide:

I believe that everyone able to work, should work and work hard.  I believe that the Federal Government is too large and that the states should have more say.

I believe in the Freedom to Arm Bears and that a person’s right to free speech shouldn’t include hatred or putting Jesus in a urine filled jar.

I believe that small businesses and their hopes of becoming a big business are the prime movers in our economy and technology.

I believe that unions and collective bargaining were great in the past but today most of their purpose is obsolete and exploitive (NFL, UAW, etc.).

I believe that the middle class pays way too much taxes and the upper class not enough.

I believe that a person’s skin color, education, religious background, or country of origin doesn’t automatically make them more noble, more right, or more wrong than any other person; ignorance comes in all shapes, colors, and sizes.

I believe that the US should maintain a very strong military stand but be more quick to admit our mistakes and clean up our messes.  I believe that our military should stop being ‘peace keepers’ and ‘policeman’.  We are trained to kill, not promote peace.

I believe that we as a nation have lost our way in regards to the respect for family, listening to our older population, tolerating our younger population, and forgetting what it was like to be the other.

I believe that the creation of stable and loving families is paramount to our success and we should do whatever we can to promote that (including homosexual and heterosexual couples).

I believe that although abortion isn’t my personal choice and adoption should be considered; that my personal and religious moral views shouldn’t be imposed on others.

I believe that we should should be good stewards of the environment, ourselves, and our wealth.

I believe that health care costs are out of hand and we are not getting our money’s worth while most of the doctors I know don’t make a fair wage for their training and efforts.

I believe that raising great kids is the most important and hardest job any person can have.

I believe that forgiveness and apologies should be freely and liberally dispensed.

I believe that we live in one of the greatest countries on earth and that its a travesty when people fail to reach for the American Dream, don’t vote, or complain without action.

I believe that charity should come from religious and social groups instead of the government.

I believe that our legal system is morally and effectively bankrupt and that we have too many lawyers in Congress.  I believe that we should move away from the ‘professional politician’ and go back to a more common sense approach to legislature.

I believe that we are all racist and just pretending not to be.

I believe that the rights of the individual should not infring upon the rights of the group.  If we are going to have the ‘Society for Professional Asian Engineers’ that we should also be able to have the ‘Society for Professional Anglo-Saxon Engineers’.

I believe that we shouldn’t form groups based on exclusion and that we should welcome anyone who wants to participate and contribute.

I believe that bankers no very little about wealth creation and offer too much advice.

I believe that experience provides thrice the impact of education for almost no cost.

I believe that we should have more young people engage in apprenticeships and less watching apprentice.

I believe that our older folks are dying off taking with them great huge pools of wisdom without anyone listening to what they have to say.

I believe that anyone that is offended by hearing ‘Merry Christmas’ is completely missing the point.  ‘Merry Christmas’ is a greeting and blessing of good cheer wishing you the best; its not an attempt to convert you.

I believe that the anonymity of large towns has allowed people to behave in ways that they would never get away with in a small town.

I believe that more jobs should allow for less commuting and more telecommuting.

I believe that neighborhoods and cities should be designed to encourage walking and bike riding while reducing auto use.

I believe that teachers and policemen should be paid more.  Teachers handle children when parents fail and policemen handle children when teachers fail.  Teachers and policemen form the two bookends of our youth and should be respected more by our society.

I believe athletes are paid entirely too much and are often caught “showing their ass”.  We need to refocus our hero worship on more deserving people.

I believe that its despicable that our military families serving our countries needs often do so poverty level wages and that we aren’t doing enough to take care of them once they become injured.

I believe that having all the right answers isn’t near as helpful as asking the right questions.

I believe in the basic goodness of all people and at the end of the day we only want acceptance, respect, and love.

So, does that make me a Republican, Democrat, or a whirly bird whackoo?  (Could I be all three?)

Mojo

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About to Break

We’ve been consolidating for a good bit and most of the overall markets are sitting in a pretty tight band.  Much like a coiled spring we are ready to move suddenly and dramatically.  Take a look here:

You can see that we are stuck in a channel between 8500 on the bottom and 9100 on the top.  Which way will we will go?  Its tough to say but right now the MACD is trending down indicating an exhaustion in the upward direction.  Is that certain?  Of course not and news can change anything.

Before you send me a bunch of emails reminding me that I hate the MACD remember that is only partially true.  The MACD, along with most oscillators, are horrible about 70% of the time because the price action is trending in one direction or other.  MACD, along with most oscillators are most valuable only when the price action is trending sideways like right here.

It should make for an interesting couple of weeks!

Mojo

Popularity: 19% [?]

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