I’m going to skip recapping this week, every financial news site has the crazy blow by blow of the craziest week I’ve ever witnessed since getting close to these markets 6 or 7 years ago.  I’m just going to recap my trades and the plan going forward.

So lets start with OIL.  What the H.  Ignore the lame Nigeria news point that hit the wire, this was all about a fall that was too fast and short covering.  But in that same theme the bounce off the lows is also too fast and too overdone as well.  Don’t expect this bounce to last, take profits soon.  My OIL positions basically doubled this week so I’ll look to cash out at least 50% of the positions next week, I’m more than a little proud that I had 10k+ into a position that every pundit said was headed to $30.  Ha.  This is still a long term strategy for me but I can’t turn my back on a double on this large of a position in 3 days….

My general market bet is up 75% for the week (SPY spring calls).  I’ll exit 50% on any further big rally days.  Friday is a big day next week with a jobs report, its probably nothing special but anything out of the norm is going to move the market up or down in a big way, I want to be playing with the houses money on SPY by Friday…

VMEM – I had a HUGE gain on this position leading up to earnings (.30 cents to .85 cents), I took 1/3 out with great profits but like an idiot I left the big position in for the earnings TANK.  Good grief they suck.  GRRRRRRR.  I hate that I used to work there and used to sell x10 more then the reps do now.  The lesson I take away for this is that you should not bet on a stock that you are to close top.  Yes being close to something gives you additional insight… but I think the emotional connection is just too much to overcome.

Bottom line is that it was a great week.  No an AMAZING week.  I think next week should be good leading up to Friday, thats the wild card day, I’ll post again before Friday when I decide on my moves.  Get ready for some MAJOR moves on Friday next week.  Its likely going to be crazy.

Time to separate the men from the boys.

I was driving North to LA this morning when the markets opened and I missed one of the best trading opportunities ever.  I tried my best to make moves while driving via my mobile (yeah yeah not safe i know) but I just couldn’t get it done with limit orders since the swings were too fast to track.  I did get into some new positions but not at the levels I would have preferred, but still good I think.

I did start the day with the most random DOUBLE ever though.  On Thursday I shorted the VIX with 150 Sept $13 puts for .10 cents, and then I instantly entered a 60 day limit order with a sell at .20 cents.  I figured if someone offered me a double I’d take it.  Well for some random reason it filled?? 🙂 The VIX spiked to above 50 and my call that it falls below 13 doubled. um…. OK.

In the theme of shorting the VIX I also opened a $16 September put at .70 cents.  I’m going to give it a couple days before I enter a sell order.  VIX options are the most time sensitive play out there so until you get within literally a week of expiry you got room to move.  I’ve been pretty hit and miss playing the VIX but it is spiking to historic highs so as long as we get a little stability in the next couple weeks this should also be a nice double.  I really wish I had more time to study VIX strategies as I think there is a way to capture these moves… selling the calls and puts vs buying… if you sold a call put spread to take advantage of the significant time premium???

So the bottom line is my head is spinning with these market moves.  I love the action.  So why the sell off?? um no one has a good reason.  We don’t have a banking crisis, we don’t have a sub-prime crisis, we don’t have a recession, we don’t have a war, we don’t have any significant political crisis.  No Greece issues.  What we have is China and the fed. Ha.

Do you know what we have??? we have a Bull Market that ran too far with no correction.  Every technical trader out there, which is EVERY hedge fund btw has been building in a sell strategy for an inevitable “correction”.  So what happens when 70% of the market has computer programs set to execute a sell strategy when certain technical factors hit the system that indicate a correction is in motion….. well a negative feedback cycle kicks in.  As a physics kind of dude I love when the physical world collides with the financial, cool to watch.  The problem is its hard to break a negative feedback cycle…

So now what? I have no idea.  But lets looks at the basics:

China is black hole of reality.  Guess what…communism meets capitalism is messy.  very very messy.  For those that are unfamiliar, its usually capitalism vs socialism and communism vs democracy, China is doing a little Communism capitalism which = messy.  So messy we got.  BUT lets look at the basics, we have about 1.5 BILLION people who are looking to crack into the real world economy.  These are real people, 1.5 billion individuals, not statistics, real mothers and fathers fighting for a better life for their children.  So China is slowing in GROWTH… ok, not shrinking, just slowing.  got it.  Their stock market? a joke, fiction, communism fiction, once the market figures out the China stock market is NOT the China economy we will be ok.

The Fed.  The market really really needs the Fed to raise and then to indicate the slowest ramp up ever.  Every talking head idiot that says a raise of .25 points points matters is a moron.  The raise indicates that the economy is getting better, not worse.  Its not great, yes we all know that, but we are growing not shrinking. Bottom line.  Come on, interest rates for consumers may actually DROP if we raise to .25 and then commit to a long hold.  It will kick housing even higher and stop this market madness. I’m not sure the market can find a bottom till we get this.  The fed is very aware of the equities market, but they are NOT a slave to it.  These are very very smart people.  Have a little faith, not a lot, just a little.  (for those that want to debate monetary policy and the fed I’m up for it, Milton Friedman had it right in theory but we can’t get to free market, too many politics, so what we have is this mess)

So what am I doing?  I am staying with my strategy to give this market a little time, no more short term option strategies.  I am going out to January 2017 with all OIL plays and I’ve built a 6k position into USO $15 call Jan 2017.  I will continue to cost base down this position every $2 drop in WTI.  Oil is not viable for the world below $40.  So betting that it will bounce back in the next 15 months doesn’t feel that risky to me.  If we spike back to $60 at any point in the next year this will be a very nice return… (and don’t start with me on the etf contango issues, its just a price to pay, the leverage of options against the etf make it such a small issue its not worth discussing.)

As discussed I have the short on the Vix, September $16 Put.

I also started a position on SPY March 2016 $210 call (general market bet).  I didn’t get the bottom of today’s rout, but close enough to feel good.  I’ll give this one or two more rounds of cost basing down for every 2% the market moves down and then hold till December and then roll it out if we haven’t recovered by then.  I will not hold this past a 3 month expiry, I will roll before then if needed.

I also started a position in XLE January 2017 $70 call.  This is just an additional bet in oil, but with less of a dependence on the US dollar, which could affect WTI.  This is an ETF that tracks big Oil (Chevron, Exxon, Schlumberger, etc)

Fun times.

“Be fearful when others are greedy and greedy when others are fearful”

Lets get it on.

I started building a position with the USO Jan 2017 $15 calls.  I have no idea where the bottom for oil is, but $40 WTI doesn’t seem sustainable because that is below cost to produce in many parts of the world.  2017 should give close to a year without significant time decay.

The market has continued to deteriorate and I’m glad I resisted the urge to cost base anything down.  The only new positions opened in the last couple weeks are USO and TWTR, both out in 2017.

The last of my BABA is basically at zero now, still made some money on this trade but not as much as it could have been if I didn’t re-enter the position.

DIA is likely a zero as well, but the VIX spike allowed me some good profit to take the sting out of this one.

This market needs two things to break out of this grind in my mind.

1. We need to get the 10% correction that the technical traders are so desperate for.  The good news is that we are approaching that number now, by my rough calculations that’s about 16500 on the Dow.  That’s only 600 points away right now.
2. We need the fed to raise rates off of zero.  I don’t think they will do it in September but I really wish they would.  No one knows how the market is going to react so everyone is just sitting on the sidelines waiting.  Likely we will have to wait till December.

If we can get to a 10% correction before the September fed meeting and then we get off of 0% then I think we could have a mild rally back into the rest of the year.  I’ll probably start buying some S&P 6 month calls if we can get the 10% correction.

I only have two positions that are September and it looks like they are both heading to zero..

BABA is going to zero for sure, I’ll see if we get an dead cat bounce (it will be small) and then I’ll just take the loss later in the week.  Fundamentals of what they are doing are great but I don’t think there is a stock in the world right now that can impress the market, sentiment is very negative, especially something as closely tied to china as BABA.  I had taken 3/4 of my position out at close to a double so this trade will still be a winner, but its still painful to see the market take a stock down when this war result was ALREADY PRICED IN!!

DIA, I said I would exit if we rallied 250 in a day and we almost got there… which means I almost sold… ouch.  But that is why I opened the VIX position, its up 40% today so my insurance is kicking in and I’ll likely get out of this without too much of a loss if you combine the trades.

VMEM came off the crazy lows and I sold some .30 cent calls for .65 cents.  I still have a big chunk of this, probably too much, but I’m going to roll the dice and see what the earnings bring at the end of the month.

So for the week it looks like 2 losers and 2 winners, given we are down big time that’s not too bad.

But outside of this week I’m starting to build long positions out into spring and all the way out to 2017.  I’m going long on TWTR, USO, etc.

I don’t have confidence this market is coming back in the short term or that OIL will bounce back that quickly either.  BUT…. both will come back, its just what things do.  Its so frustrating to hear the technical guys talk about OIL like its a stock vs a commodity.  But for anyone following me into OIL long term don’t forget that the wild card is the US dollar.  I’m also looking at Brent vs WTI, or maybe both as a hedge.

I’ve been pretty disconnected from the markets for the last two weeks.  I’ve of course checked my account everyday via mobile, but haven’t had my pulse on the market.  I made the decision that before I unplugged I was comfortable with my positions, nothing was set to expire till Sept with most of it out into December and Jan.

Turns out I should have sold everything and then re-entered when I got back.  But that is the way it works some time. Time for me to review and learn some lessons.  You have to take something away from every trade, profit or knowledge.  Not much profit the last two weeks…

DIA – This trade went up nicely but I didn’t sell, its now down, I need a pretty strong rally in the next two weeks if I’m going to get out of this even or with a profit.  I’ll sell part of the position, even if its at small loss, on any rally over 200 points.  But the lesson I’m taking away from this trade is that I was really just trying to play the “market” not specifically the Dow 30.  The Dow and the S&P 500 usually trade very closely together, but the last two weeks that broke big time.  The last two weeks the Dow is down 3%, the S&P is down 1.5%  That is DOUBLE.  With the leverage that Options bring, that is a big gap.  Lesson learned.  I am going to buy SPY from now on when I want to play general market moves.  I got sucked into this mistake because the media almost always quotes the DOW when they report moves.  Lesson learned.

USO – I started a position on USO (vs UCO) a couple weeks ago when WTI broke under 50.  The volume is much better on USO and though its not as leveraged you can get orders filled a lot easier, that is a lesson I learned previously, volume matters a lot.  I’ve got the Oct 16th, $20 calls.  $20 on USO is = to about $60.  I don’t necessarily think we are getting back to $60 in mid October but these far out of the money options have a huge potential to move, they are trading at .07 cents right now.  This is a very very aggressive play, but if WTI rally’s up a few dollars on any sort of Middle Eastern turmoil or if the Iran deal hits some bumps, that is not out of the question.  Listening to the “experts” predict the moves of Oil drives me crazy so I’m trying to ignore the never ending headlines.  I’m actually thinking about putting a really big bet on Oil with a date out to Jan. 17 and just leave it.  You can buy the Jan 2017 $20 calls for about a $1.30, will Oil get back to $60 in 16 months??  If we get back to $60 that will be a 300% return with very little risk in my mind.  For anyone scared of the risk in Options that is one of the safest bets you could make in my opinion.

VIX – bought a little VIX action with a Sept date, its flat, only way it will move is for a big spike this far out.  I bought it at the lows of 12.  Its just a hedge against a major fall against my DIA position.

BABA – even though I’m playing with the houses money on this one since I got over a double, its still frustrating to see it down.  Its didn’t hold $80 because the news out of China is just getting worse.  Its all going to come down to earnings on the 12th.  I’m hoping for a rally into earnings to get me back to even and I’ll sell 1/2 and leave the rest to see how that actual earnings play out.  When I re-entered this trade after making so much money I should have pushed the expiry out farther, instead I just added to my old position.  Lesson learned.  If you are committed to a idea you do NOT have to just cost base down the same position, you can add but with a different expiry.

TWTR – I bought into this knowing the only real catalyst would be a new CEO or an acquisition rumor.  Nothing has changed on my premise or plan, lots of time for either of those scenarios to play out.  But WOW was it painful to watch TWTR blow away the top and bottom line and then get crushed because of user growth and the brutal feedback of the new/returned CEO.  One comment, one little comment that they are open too or looking into a sale will shoot this stock through $45 instantly.  I wish I could cost base down but I’m already in with a sizable position.  If anyone reading this has not bought TWTR options, look hard, go way out to Jan. 2017 if you are cautious.

VMEM – this is painful, last week it rallied up to 2.50, options DOUBLED, a couple days later its back down to 2.00 again and the options with it.  I have a big position on this, with lost of time, feel OK with my new cost based position but I sure hope they had a good QTR or announce they are looking for a buyer on the next earnings call on the 24th.  I really don’t know how low this stock can go, who is selling any volume of shares at $2? IPO was $9.

So in summary the last two weeks have sucked.  Earnings season has not been great which really surprised me since expectations had been lowered.  The sentiment I feel in the market is now very negative, the street is looking for any reason to sell off and punish stocks, I really don’t know what is going to break this feeling, its summer and volume is low which can have an effect, but I think what we need is an official correction (10% off the market highs) and for the Fed to just get the stupid raise on the books.  Hopefully I can salvage these positions and move into a higher ratio of cash and then pick some really long stuff off waiting for the stupid technicians required pullback so that we can get back to the familiar patterns.  Why the street thinks interest rates of .25% vs 0% will make any real difference is beyond me.