Ready For The Final Capitulation?
The Dow slumped over 400 points today as investors come back to reality with all the bad earnings and bad short term economic forecast. Is the market ready for that final capitulation that I have been talking about? It certainly does look close enough as the Dow approached the bottom line of its neutral channel. Over the next two days, we should see the Dow either reversing its course back upwards again, continuing its neutral trend or breaking out to downside, fulfilling my final capitulation prophecy. The deciding factor would be the strength of the 8100 support level. I maintain my outlook of a bottom after one final capitulation.Labels: 2008 crash, fundamental analysis, technical analysis
posted by Jason Ng at 3:55 PM
2 Comments:
Hi Jason,
i (in my amateur ways) tried to trade a Bear Put Spread 2 days ago on the SPY as from fibonnacci Retracements, SPY is targeted to go as low as 84.
I bought the Mar 09, 91 Put ($11.19) and sold the Mar 09, 84 Put ($8.94) at $2.30 when SPY was ($89). I got stopped out within the same day when the Mar 91 Put reached 10.78 (I tried to limit my risk to about 10% risk).
It indeed shows my inexperience in the market, being in and out of the market in such a short time, paying brokerage and losing about $0.20 per spread.
But after continuing following the market, i realised that SPY has indeed continued to head towards 84 (closing at 85.82 ytd). But what surprised me was that when i checked the market price of the same spread i traded, the bid price was still below my purchase price of $2.30 (+/- $2.20)! The underlying changed about $3 and the spread still wasnt profitable.
I started to attribute this to the implied volatility and lack of liquidity (high big-ask spread) as the spread is now trading at (Bid - 2.25, Ask - 2.85). I then checked all other spreads of different durations and realized the problem of big bid-ask spreads are apparent too.
Is this a bad time to trade spreads?How do I set my cut loss point?
That was a trade that should never have been made in the first place. Bid ask spread is a killer in options trading and by putting up with such a huge spread, how do you expect to keep losses within 10%??? One slight vibration against your favor would have hit a 10% loss. Furthermore, putting on a spread when you don't intend to hold the short leg to expiration is a complete waste of time.
There are better ways to profit from the recent downturn but what you did was terrible. Sorry but true. You need to learn more systematic ways of trading and profiting from the recent market condition such as using my Ride The Flow system at http://www.mastersoequity.com/MOE_ridetheflow.htm
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