The markets hesitated today, but did manage to squeak out a small gain, after giving up the majority of Monday's bull move. We saw the formation of a bullish hammer candle late last week, but yesterday's move couldn't sustain its gains, as it closed well below the highs of the session.
The S&P is currently sitting between its last support and resistance levels, and we could see another day of this. The market could be waiting on the results of the Brexit vote (scheduled for this Thursday) before it makes its next move. Waiting for the final tally before entering trades could prove useful...it never hurts to wait another day.
See you on Wednesday's Mid-Week Trading Room Update class!
Have a great night,
Your Maverick Trading Team
Over the years, we have spent thousands of hours talking with our traders and answering their emails. We have a huge collection of really great information that only benefited the specific traders who we were interacting with. So, we decided to start sharing all of these gems of knowledge with everyone.
Tuesday, June 21, 2016
Monday, June 20, 2016
Butterflies, Brexit and Basketball
From Our June 2016 E-mail Archives: Our Head Trader, Robb, replied to an e-mail from one of Maverick's traders who had a question about a possible Butterfly trade in Silver Wheaton (SLW).*
-----Original Message-----
From: Christie H.
Subject: Regarding Possible Trade in SLW
Date: June 20, 2016
Good Morning Robb and Corey:
I was wondering...what do you think about SLW...a Call Butterfly, strikes either 20.5/21.5/22.5 or 20/21/22 that expires THIS FRIDAY??
I am questioning it a little because it gapped down just a little bit and it had a gap up on June 8, so it kind of looks like a small island gap, but not sure?
Thank you,
Christie
-----Reply Message-----
Hi Christie,
A Butterfly (and Condor) are not necessarily sideways trades, but are really long/short volatility plays.
The best way that I can illustrate this is to use a sports betting analogy. In sports, there is an over/under points bet that is very popular. For example, for last night’s NBA Finals game, the over/under bet was 208 points total for the two teams. Of course, everyone knows that both teams are going to score points. The question that the bid/ask bet asks is, "How many points are they going to score together?"
In trading, everyone knows that Silver Wheaton (SLW) is going to move around, but the important question is, "How much is SLW going to move?"
With your proposed SLW Butterfly (basically, a play on precious metals), the question is, "Will the movement of SLW be lower than market expectations this week?"
If you were to compare last week’s options against this week’s options, then you would see a big difference in values – since the Brexit vote this Thursday is expected to create huge volatility in all asset classes, including precious metals. So, the play that you are making (the SLW Butterfly) is a bet on the markets not moving as much as expected this week with the Brexit vote.
The Butterfly that you are looking at is a very reasonable trade to make since there is a defined amount of small risk and a good reward/risk potential outcome. As long as you are position-sized correctly, then the trade is fine. Of course, the choice of whether to take the trade or not is, as always, yours alone to make.
Thanks,
Robb
* NOTE: Some original wording may have been modified for legibility and/or clarification
-----Original Message-----
From: Christie H.
Subject: Regarding Possible Trade in SLW
Date: June 20, 2016
Good Morning Robb and Corey:
I was wondering...what do you think about SLW...a Call Butterfly, strikes either 20.5/21.5/22.5 or 20/21/22 that expires THIS FRIDAY??
I am questioning it a little because it gapped down just a little bit and it had a gap up on June 8, so it kind of looks like a small island gap, but not sure?
Thank you,
Christie
-----Reply Message-----
Hi Christie,
A Butterfly (and Condor) are not necessarily sideways trades, but are really long/short volatility plays.
The best way that I can illustrate this is to use a sports betting analogy. In sports, there is an over/under points bet that is very popular. For example, for last night’s NBA Finals game, the over/under bet was 208 points total for the two teams. Of course, everyone knows that both teams are going to score points. The question that the bid/ask bet asks is, "How many points are they going to score together?"
In trading, everyone knows that Silver Wheaton (SLW) is going to move around, but the important question is, "How much is SLW going to move?"
- When you go long a straddle or strangle, you are essentially betting the over that volatility (the "score") will be higher than expected – since volatility expectations (i.e., Implied Volatility) are built into option prices.
- When you chose a butterfly, condor or short straddle, you are basically betting the under that volatility (the "score") will be lower than market expectations.
With your proposed SLW Butterfly (basically, a play on precious metals), the question is, "Will the movement of SLW be lower than market expectations this week?"
If you were to compare last week’s options against this week’s options, then you would see a big difference in values – since the Brexit vote this Thursday is expected to create huge volatility in all asset classes, including precious metals. So, the play that you are making (the SLW Butterfly) is a bet on the markets not moving as much as expected this week with the Brexit vote.
The Butterfly that you are looking at is a very reasonable trade to make since there is a defined amount of small risk and a good reward/risk potential outcome. As long as you are position-sized correctly, then the trade is fine. Of course, the choice of whether to take the trade or not is, as always, yours alone to make.
Thanks,
Robb
* NOTE: Some original wording may have been modified for legibility and/or clarification
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Thursday, June 16, 2016
End of Day Post
All three majors posted a hammer candle on support levels, as the Fed decided to keep rates unchanged yesterday. The markets each moved well off of their lows, closing higher on the session.
We now have another hammer candle on support levels, showing continued strength at these current levels. We still see June options expiration tomorrow and, regardless of sentiment change, we must deal with what is given.
Next week should give us a better perspective on market sentiment. Follow your rules into June expiration and let's look for more opportunities moving forward once triggered.
See you on this Sunday's live Trading Room class!
Have a great night,
Your Maverick Trading Team
We now have another hammer candle on support levels, showing continued strength at these current levels. We still see June options expiration tomorrow and, regardless of sentiment change, we must deal with what is given.
Next week should give us a better perspective on market sentiment. Follow your rules into June expiration and let's look for more opportunities moving forward once triggered.
See you on this Sunday's live Trading Room class!
Have a great night,
Your Maverick Trading Team
Tuesday, June 14, 2016
End of Day Post
All three major indices were down slightly today in choppy trading. The INDU, S&P 500 and Nasdaq were down -0.33%, -0.18% and -0.10%, respectively. The choppiness is likely attributed to tomorrow’s Fed rate announcement and the U.K. vote next week (June 23rd) on whether or not to leave the EU (the potential "Brexit").
Be careful entering into positions ahead of the FOMC's conclusion tomorrow and Fed Chair Janet Yellen's press conference. While most are expecting Yellen to be dovish, just a few words spoken by her could quickly move the markets.
The recent spike in the Volatility Index (VIX) was impressive, to say the least. There have been 35 separate instances of +30% or greater 3-day VIX explosions in the last decade and in only one was the S&P 500 down less than the current one. So far, the equity markets have just not had much of a reaction to the recent spike. That could all change tomorrow – dun dun DUNNNNN!
See you on Wednesday's Mid-Week Trading Room Update class!
Have a great night,
Your Maverick Trading Team
Be careful entering into positions ahead of the FOMC's conclusion tomorrow and Fed Chair Janet Yellen's press conference. While most are expecting Yellen to be dovish, just a few words spoken by her could quickly move the markets.
The recent spike in the Volatility Index (VIX) was impressive, to say the least. There have been 35 separate instances of +30% or greater 3-day VIX explosions in the last decade and in only one was the S&P 500 down less than the current one. So far, the equity markets have just not had much of a reaction to the recent spike. That could all change tomorrow – dun dun DUNNNNN!
See you on Wednesday's Mid-Week Trading Room Update class!
Have a great night,
Your Maverick Trading Team
Thursday, June 9, 2016
End of Day Post
The markets continued to move sideways as resistance levels continued to hold. Consolidation has been the outlook for the markets all week and, with one day left in the week, could end up being exactly what transpires.
Even with sideways action in the markets, we are seeing some great setups in directional trading. We don't want too be to directionally aggressive, so look at diagonal call and put spreads. This could be a great benefit as we head into next week and June's monthly option expiration.
Remember, we have our special "Options Expiration Guide" live class next Thursday, as we do the day before every month's option expiration.
See you on Sunday's weekly Trading Room class!
Have a great night,
Your Maverick Trading Team
Even with sideways action in the markets, we are seeing some great setups in directional trading. We don't want too be to directionally aggressive, so look at diagonal call and put spreads. This could be a great benefit as we head into next week and June's monthly option expiration.
Remember, we have our special "Options Expiration Guide" live class next Thursday, as we do the day before every month's option expiration.
See you on Sunday's weekly Trading Room class!
Have a great night,
Your Maverick Trading Team
Tuesday, June 7, 2016
End of Day Post
The bullish climb continued, with the markets now back to resistance levels. We have been watching a steady move higher over the last ten sessions or so in all three majors. Sentiment is still strong in light of a very weak jobs report last Friday, as the markets regained the majority of their losses into the close.
The INDU and S&P have both posted small gains over the last two days. The Nasdaq did close lower today, as all three markets are starting to look a little overextended. Look for some consolidation or even a retracement later this week. Take into consideration the overall trend when looking for more opportunity. We should see more opportunities develop with some consolidation or a retracement.
Have a great night,
Your Maverick Trading Team
The INDU and S&P have both posted small gains over the last two days. The Nasdaq did close lower today, as all three markets are starting to look a little overextended. Look for some consolidation or even a retracement later this week. Take into consideration the overall trend when looking for more opportunity. We should see more opportunities develop with some consolidation or a retracement.
Have a great night,
Your Maverick Trading Team
Thursday, June 2, 2016
End of Day Post
The markets continued to move higher, but at a much slower pace. We did expect the markets to slow down as they moved into resistance; however, the last two days also left us with longer lower shadows. We could interpret this as increasing bearish presence, making it difficult for the markets to move higher, a sign of a topping market.
Sentiment is still bullish as we slowly approach market resistance. Look for horizontal and diagonal spreads to take advantage of bullish consolidation. The NASDAQ has been the strongest of the three majors and could be a good place to look for more directional bullish candidates.
As always, stay balanced and properly exposed to your outlook.
Have a great night,
Your Maverick Trading Team
Sentiment is still bullish as we slowly approach market resistance. Look for horizontal and diagonal spreads to take advantage of bullish consolidation. The NASDAQ has been the strongest of the three majors and could be a good place to look for more directional bullish candidates.
As always, stay balanced and properly exposed to your outlook.
Have a great night,
Your Maverick Trading Team
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