Tuesday’s Levels

  • August 10, 2004
  • Mark Melin

Monday Recap: We had a good day
Monday with a profit of $120.

In our prediction for Monday we said:  “We could see a touch of both sides of
the flat line Monday and ultimately I don’t see a big move happening today.  I’m
looking for a potential early bounce Monday to the 9850 level on the cash Dow. 
When we get close to that level we could see sellers take control of the
market.”  In fact on Monday, the cash Dow started by testing the 9850 levels,
whereby sellers quickly took control, slapping the market’s measure back down to
trade in a flat-line formation for much of the day, ending down just a fraction
of a point virtually near the same place the market started. 


Oil continued its march towards $50 per barrel. It has to be noted that oil is
doing the work of the Fed.  Many Chicago traders are noting that every rise in
oil has the impact on the market as does a rate hike.  Thus, are rate hikes and
rising oil going to create a double hit to the economy?

^next^

Prediction for Tuesday: The Fed
will rule the day, and I expect they will raise rates (no surprise) but that
they will also indicate that this economy has strength, but they might start
taking a look at further data before making firm decisions on another rate
hike. 


There’s a chance a properly positioned Fed announcement could put a bottom in
this market.  Further, there is a chance that a negative Fed announcement – such
as one that ignores recent weak economic data or, conversely, portrays the
economy as weak, could move us lower to the 9700 level.  On the day, we’ll once
again watch the 9850 level on the upside, then again we’ll watch the 9900-25
level.  On the downside we’ll watch the 9800 level.  If this is broken and
holds, we’ll then watch for a touch of 9700 on the cash Dow.

 

Portfolio Strategy:  Right now we’re pretty close to delta
neutral, and that’s likely where we’re going to stay.  I don’t want to place any
big bets, at this point let’s just take profits out of the reduction in option
premium. 

Previous Day’s Results and Current Portfolio Status: 

Daily Profit: $120

10100 Sept. Mini Dow Call Options

Long 3 at start of day.  We sold one yesterday at 84, now long 2.

Yesterday these options closed at 70, down 10. 

Loss yesterday on this position was $80.

These options expire September 17.

10300 Sept. Mini Dow Call Options

Short 5

Yesterday these options closed at 27, down 8. 

Profit yesterday with this position was $200.

These options expire September 17.

Charts from
www.stockcharts.com

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Trading Method:  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.

 

 

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