Pull Back It Is

I ended my last post with a prognostication about the direction of the market. And I quote, "If tomorrow is a day like today, we might be in for another bear run. However, if the market makes a move like it did in mid-August and early-September, we are looking at a simple pull back."

Since that statement was made late last Thursday night, Friday put in hammer candles which indicate reversal, and Monday and today, confirmed the change of direction. This indicates to me that we are in for at about 3 to 6 additional days of upward price movement, maybe more. With that being my opinion I am going to strive at another option play.

My option play this time is on the SLV index. With all the talk about this commodity being under-priced and extremely rare in comparison to gold. I see this as a 'shiny' time to get involved with this commodity. Since I am in no position to buy the commodity directly, the index is a perfect place to park some cash for a few days or so.

As is my strategy, I want to get in on a confirmed upward move in the stock price. To do that I need to identify my contingency trigger, so I pull out my equation of taking 10% of the current ATR and adding that to the current day's high. ( (0.42*.10)+17.13=17.17 ) Now that I have my trigger, I take the product of 10% of the current ATR and multiply it with the Delta of my chosen Call option, and then add that to the asking price of my chosen option. ( ((0.42*.10)*.58)+1.50=1.52 ) This sum just happens to be in the middle of where my brokerage account will allow me to set a stop, so I round up to the next available price. (1.55) Now that I have my stop I set my limit to 0.05 more than my stop. (1.60) So my order is a stop-limit order of 1.55-1.60 after SLV is priced at or above 17.17.

Now as far as the rest of my portfolio goes, here is how things stand. NG is back above $5, so it is in contention to be called away from me by the Call option I sold against it, which you would know is a good thing to me if you have been following. However, it might just bounce off of $5.75 like it did back in September and come flying down below $5. Expiration is eleven days away so anything is still possible.

My Put on ETP is still in play although the bid price has fallen below my stop. The reason being that no one has purchased any Puts at or below my stop price, thereby converting it into a market order. That, unfortunately, is the risk of setting stops, there is no guarantee that the order will get filled at that price. However, as I look at the price movement of today and compare it to the price movement of the past few weeks. I see that there is a possibility that the price tomorrow might actually head lower tomorrow, thereby increasing the value of my option. The sad part is that my Put expires in 11 days, so I will have to sell it manually in the next couple days anyway.

Considering the amount of the potential profit I have already lost on my ETP Put I may have to institute into my strategy the practice of setting my stops on the bid price, setting tighter stops, or selling at market price once a target profit has been reached, at least until I have enough capital to make more orders at any given time. That is my opinion, you can take it or leave it.

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