Friday’s Levels
Thursday Recap:Â In our
prediction for Thursday we said the markets were going to do one of two things:
test resistance near 10500-50, which didn’t occur; or the Dow would move down
and test the previous breakout point. In fact Thursday was a consolidation day,
with the cash Dow starting the day below the flat line, backing and filling most
of the morning with a brief spike above the recent rally highs. When buyers
couldn’t rally, sellers got the courage to take the Dow lower and test support
at the previous breakout point, finishing right on support at 10443, down 35 on
the day.
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Charts from
www.stockcharts.com
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Like the Dow, the S+P moved to new rally highs
intraday, touching its upper level Bollinger Band on an intraday basis.Â
However, when no rally materialized, sellers to the broad-based index to close
near support at 1140.65, down 3.41 on the day.Â
It is interesting to note that while stock
rallied over the past week, interest rates have been moving lower and are
currently trading near the lower end of our predicted trading range. If rates
continue to move lower, this could help propel stocks to new highs.Â
^next^
Prediction for Friday:Â So long
as we don’t get any event risk surprises, I think there is about a 60% change
that we’re going to bounce off support Friday and potentially break into new
highs – and we could touch the lower end of our resistance zone. On the cash
Dow that means a test of the 10500 level and on the S+P a test of 1150. On the
Dow any move near the 10550 level might indicate a selling opportunity.  One
component that might hold back stocks Friday is the worry that traders are not
going to want to be exposed to event risk over the weekend. If the markets get
negative on Friday, watch for a quick test of 10440 on the cash Dow. If this
can’t hold, we’ll likely move down and test more significant support at 10400.Â
Portfolio Strategy:Â I’m going
to want to lock in profits on what has been a good week for our portfolio and
get close to delta neutral on Friday – and potentially delta negative if the Dow
gets near 10500 late in the day or by some chance moves near 10550 – which isn’t
likely today.Â
Previous Day’s Results and Current
Portfolio Status:Â Â
Daily Loss: $310
9900 July Mini Dow Put Options, Long 4:Â
Yesterday it closed at 20, up 5. Profit yesterday with this position was $100.
10300 July Mini Dow Put Options, Short 5.Â
Yesterday it closed at 72, up 12. Loss yesterday with this position was $300.Â
We are now short 5 put options.
10600 July Mini Dow Call Options, Short 2:Â
Yesterday it closed at 50, down 5. Profit yesterday with this position was
$50.Â
Mini Dow Futures, Long 1:Â The mini Dow closed at
10438, down 32. Loss on the day with this position was $160. We are long one
mini Dow.
Estimated margin requirement (may vary broker to
broker): $11,660
Delta: +131.4
Gamma: -68.20
For questions e-mail,
subscriptions@dowoptionstrader.com
Trading Method:Â Mark Melin strategically short sells options and then
directionally trades within this short options portfolio, always hedging one
position against another to generate consistent profits.
DISCLAIMER:
Past performance is not necessarily indicative of future results.
There is a substantial risk of loss in commodity futures and options
trading. It is not suitable for all investors. Only you can determine
whether this trading suits your particular needs and risk tolerance.
All profit and loss representations are hypothetical and based on the real
time signals generated by The Dow Trader. The results have not been
adjusted to reflect slippage or commission charges. No representation is
being made that any account will or is likely to achieve profits or losses
similar to those shown.