Order Flow Up On (Dead Cat?) Bounce

March 15, 2001
Tony Saliba

Options traders and
other
market practitioners are still rubbing their eyes to clear some of
the smoke from this week’s trading Holocaust. Market capitalization in many
stocks are a shadow of their year-ago selves. Those investors that had no
protection have had to move out their time horizons. Daytrading folks that don’t
emphasize trading from the short side are now too gun-shy to move or just out of
ammo. Hair-curlered housewives, staring out at the lawn, are swearing at
Greenspan as they soap their dishes, cats and dogs, living in sin. What a mess.

If you’ve done nothing else than a ten
lot on each of our strategies over the past four months (we didn’t offer any
suggestions until November), you’d be down a little, with an open position left
to close, depending on how you exited. But you’d have plenty of dry powder and
some pretty good experience to raise curiosity.

Those that have emailed specific
questions in, I believe, have been satisfied with the guidance we have offered.
Some have begged to disagree, “Why should I buy a vertical and limit my
upside when I get much more leverage just owning the call naked?”!! or
the markets on these spreads are too wide and too complicated to leg into out
of.”

I agree with both, but could disagree
with either at any given time, depending on the circumstances. Don’t be a pig
and don’t be a baby. The complexity is not that bad, in fact, stay at it an
you’ll see how simple it really is. Stay small until you’re confident…we’ll be
here to help guide you through…just ask.

Fitting the pieces in where they make
the most sense is what it’s all about, in my mind. If you’re Dr. Mollarfiller
and you have to rush to yank a filling, then you shouldn’t trade the tough
strategies…

Options practitioners today are
active, as order flow has increased slightly from recent levels, registering a
1.5 on a scale of 1.0 to 10.0, with 2.1 being the 30-day moving average. Once
again, traders are selling premium, with call sellers making themselves
conspicuous this morning. (No big surprise there!) Volatility has come in
significantly from yesterday.

Here are today’s numbers:

As I mentioned yesterday,
options practitioners must adjust to a “bear market mode,” and adapt
their trading strategies and expectations to match. With this in mind, I will be
recommending various strategies and composing monthly lessons to initiate the
bear-market neophyte into his new surroundings.

With many of the big-name stocks
already at unbelievably low levels, (hey, they won’t go to zero!), we will
certainly see a good deal of sideways trending in the market in the near suture.
To exploit this trend, I will be putting on Butterflies — my
“signature” strategy. A butterfly is a combination of four options of
the same type (either all calls or all puts) with three strike prices and only
one expiration. Another way to think of the Butterfly is as a combination of a
bull and a bear spread. Butterflies are limited risk, limited profit spreads. As
long as there are several weeks to go before the contract expires, Butters are
an incredibly valuable strategy for the trader. In my upcoming Chicago
seminar, I will be drilling the attendees on how to utilize butterflies
until they are blue i the face. But everybody needs to learn about them, and
fast…

Keep on writing me folks, at tonys@tradingmarkets.com

Order Flow Up On (Dead Cat?) Bounce

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources