Kohls (KSS) Waiting for 3rd Arrow

On Friday, KSS had 2 red arrows and looked like the 3rd arrow was poised to turn red.
Price - red
STO - green
MACD – red

Today did not do what I expected; one of the red’s turned green.
Price - green
STO - green
MACD – red

I’m still expecting this to continue its downward trend but for now I’ll wait.

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Potash Corp (POT)

2 green arrows and a ghost green.
In a good industry with good fundamentals.

This has been in an up channel for 11 months with only a few quick excursions below the channel.

It has just gotten past its earnings and has gotten back into the channel.
Yesterday’s close was at a support of 132.5
Today it opened at the support and closed higher.

Now the question is… Do I buy a Vertical Call Spread or sell a Vertical Put Spread?

Vertical Call Spread (Bullish)
Buy Mar 140 Call @ 12.45
Sell Mar 145 Call @ 10.15
Debit=2.30

Vertical Put Spread (Bullish)
Sell Feb 130 Put @ 4.30
Buy Feb 125 Put @ 3.15
Credit=1.15

In both, I’m bullish since it is a long up-trending stock even with the way the market has been swinging bearish lately.
Since both are assuming a similar movement, I am going to place an order for the debit spread. There is more potential profit (2.70 vs. 1.15) for less money at risk (2.30 vs. 3.85)

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Status of existing trades

Feb RUT IC 860C/850C/690P/680P originally sold for 2.35
RUT has finally gone above lower leg and closed at 702.4
To close the IC would cost 3.20, a loss of 0.85
I have a buy order on it for 1.50, think I’ll wait a little longer before revising that upward.

Feb PLCE 17.5/20 Vertical Call Spread originally sold for 0.35
PLCE is at 17.54 but there does seem to be resistance at 17.5
The stocks fundamentals are not good and it is not in a good industry (retail apparel).
I will wait a while longer on this one also.

Mar IWM 68 Straddle
Bought 68 Call @ 3.82, currently @ 4.55, have a sell order @ 4.70
Bought 68 Put @ 3.08 currently @ 2.46, have a sell order @ 4.00
I’d thought about raising the sell order on the call. But in the past when I’ve done that, the stock has stopped short of the new sell price and I lost more profit than I gained. So I will let the sell order stand as is. Then I still have time for the Put to make a profit.

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Watching Kohls (KSS)

Reading Friday’s post at www.optionaddict.net , Jeff Kohler said that he was looking at going short on several stocks. One of those was Kohls Corp (KSS).

Sticking to my current strategy of using 3 green or 3 red arrow, I looked at KSS.
It has 2 red arrows and looks poised for the 3rd red on the MACD.
Earnings is 2/28/08 so not a factor in selling a Feb spread.

I will check this Monday night to see if the 3rd red arrows developed.

Other stocks on his list of possible shorts had 2 green arrows or the one green arrow did not look poised to turn red (at least not to me). So they did not fit my criteria.

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A straddle

After a lot of down trending, two strong up day swings on 1/22 & 1/23 .
On morning of 1/24/08 I bought March IWM 70 Call @ 2.95
Then it turned into a possible reversal back down. So I caught near the high of the day and sold that 70 call for 0.35 more than I bought it.

Since the market is so news/event driven lately and doing big swings (even within a day), I thought rather than keep fighting the market in trying to figure out a direction or a range as in the case of iron condors, why not assume it will make some more big swings.

1/25/08 I bought March IWM straddle 68 call/put @6.90 (call 3.82, put 3.08)
Thanks for the idea Bruce!

When that order filled, I put limit orders in to sell them separately when they are 0.90 more than each was bought at. That is a swing of about 2 points in each direction. Looking at a recent chart, that seems probable.

I’m expecting the market to go back down. But I bought the straddle for March to give time for it to bounce up if it does swing as wildly as it has been.

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Children’s Place (PLCE) & 3 Red Arrows

Again doing a search for 3 red arrows.
Used
Investools Strategy Searches / Momentum Searches Archives / Stocks Trending Down


I found Children’s Place (PLCE).
Above is a 5-year chart. Below is a 3-month chart.

Out of the Money Vertical Credit (Bear Call Spread)
Sell FEB 17.50 Call
Buy FEB 20 Call

Credit is between $0.30-$0.40

If I place an order for $0.35 credit,
Amount at risk is $2.15

I am putting in a very small order. I’m still trying out this 3 Red Arrows method.

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Right Logic...Wrong Execution

Well, I had the right idea about the markets opening down today. Except I expected them to gap down only slightly then go down the rest of the morning. What they did was gap down at open big time! The IWM gapped down at open almost 3 points!

So although I put a few cents extra on my order to buy puts, I totally missed out as the options opened more than $2 higher. When I saw that, I cancelled my orders not wanting to catch the wrong side of it if it was going up.

Then I did what I knew I shouldn’t, I tried to catch the trade. I put in an order for an IWM Put where the market price was. Then the market spent the rest of the morning going up.
I saw within 30 minutes of placing my catch-up trade that things were not reversing to go down quickly so I go out with only $0.60 loss.
The market peaked around 10a and went sideways from there.
So my instinct was right to have orders in to buy puts this morning, but I didn’t expect the quick down and quick reversal.

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Trades placed for a Bearish open tomorrow

Market was closed for Holiday today. Markets open around the world were all down 3-7% today. Analysts are saying it’s a reaction to the US market being so down on Friday.
I’m expecting that the Market will open down tomorrow. So I want to find a position to play the slide down.
I looked at the stocks within the Dow for one that had 3 red arrows.

Hewlett-Packard (HPQ) has 3 red arrows. When I overlay the Dow (blue candles) on it, it follows fairly well. (There is an earnings report due 2/19/08 so will need to get out before then.)

Just looked at the available options on HPQ. Although there is a lot of open interest, there are only options available for 3 months in 2008, FEB, MAY & AUG. Don’t understand that. Not sure I want to get into this stock without knowing about why the limited options.

American Express (AXP) was the only other DOW component I could find with 3 red arrows.

Looking at the gap down on 1/11, I saw this news:

NEW YORK, Jan 12, 2008 (AP via COMTEX News Network) --Shares of credit card lenders closed lower Friday for asecond straight day after American Express Co. cautioned that the housing slumphas taken its toll on the American consumer.Late Thursday, American Express said spending on its more than 80 millioncards began to tail off in December. The company set aside $440 millionpreparing for more missed payments on credit card bills and expects a weakereconomy in 2008.

Maybe it has something to do with the market having been closed today. AXP only has options for FEB, APR & JUL.
I checked several stocks, and none have MAR options. Something must be off.

So, I am going to look at buying a FEB Put for both of these stocks.

HPQ is at 43.58
FEB 45 Put is 2.15
Expecting the market to open down, I will place an order at 2.25

AXP is at 43.05
FEB 45 Put is 3.10
I will place an order at 3.20

Since I have lost so much over the last month, I scaled back the amount of money I have at risk on each trade. Both of these trades together equal the amount at risk that I had been putting into one trade. I need to build up a strategy that works in this market before I go back to higher risk amounts. I’ve had one good trade with the 3 red arrows. Let’s see if I can have more.

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Minor Victory

I bought Feb IWM 73 Put at 5.55 based on 3 red arrows.
Watching yesterday, I put a $0.35 trail stop on when it went $1.00 above the bought price.
It sold at 6.35
Made $0.80
Yeah, a minor victory!

It was interesting that I bought short at 3 red arrows and when I sold a green arrow appeared.

Guess these arrows are not lagging as much as I expected.

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1/17/08

I am going back to the Investools "3 green arrow" method of choosing trades.
IWM is at 67.98
It has 3 red arrow indicating Sell.
So I have bought contracts of Feb 73 Puts.

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Last January Option

This is a graph of today’s Russell 2000.
It opened down from yesterday’s close.
At 10a, I sold a JAN 720/710 Call spread for $1.60 (expiring tomorrow).
Since there is talk of the Fed doing an emergency rate cut at any time, I bracketed it with sell orders. It would sell if the cost to buy back hit $0.60 or $2.50
At noon it bought back at $2.55 for a $0.95 loss.
In that time period the stock went from 695.5 to 700.3, a difference of 4.8
Even if I had put the stop further away, by 12:15p, the stock had gone up 6.4 before it went back down.
The only time it went below where I bought it was at 10:52 @ 694.2 which would have been a profit of $1.30
Instead I had a loss of $0.95
Yet again, another loss. And it didn’t go anywhere near the option. Yet when I've let options go without a protective stop, it keeps going and increasing the loss.

Okay, time to analyze this.
I sold an option with only 2 days to expire. Safer to sell with shorter time exposed to risk.

But….
It had no component of time decay to dampen price fluctuations and that's what got me.

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A brief history

During the past summer while the market was steadily climbing up, my account gained about 16% (about 60%APR).
Then the market starting stumbling. I lost some of that gain.
I switched from credit spreads to Iron Condors (Bull Put & Bear Call spread combo). At first I was too aggressive with these, not leaving the market enough breathing room. And lost a little more of that gain.
I changed to Iron Condors that were predicted to have 90% chance of expiring worthless. This worked.

Then the market began to swing wildly. I had one Iron Condor that had the upper leg run over so I bought that leg back at a loss to minimize the loss. Then, on the same day, as soon as I took the loss on the upper leg, the market plunged and the lower leg that had been worth $0.02 hours before (and I thought not worth buying back) was then over run! So I lost against both legs of the IC, something that in theory should not happen. Had it not tried to minimize the loss at the upper end or had I bought back the entire IC, I would not have lost nears as much.

Because of the wild market swings in the last month, I have lost all of the remaining gain I made over the summer AND about 20% of my original account balance.

Many of these wild extreme swings up and down (often in the same day) have been news driven and I've found them hard to predict.Things like Fundamentals, Chart Patterns and trends do not apply. I need to find a way to work in this volatile atmosphere.

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