Meta-Trader - Deep in the Money

Welcome back Meta-Traders.

It was another wild week in world markets. I have some interesting stories to tell, mostly about equities. Granted, I'm straying from the core mission of this blog which is automated currency trading. I'll return to that mission when the time is right, but for now, let's go to where the action was, which is equities.

Monday started off with the market getting beaten with an ugly stick. Everything was down except for .. Apple Computer. In fact AAPL blew through the old all-time high of 365 and closed the day at 374. The guys on CNBC's Fast Money pointed out that there was heavy call buying activity ahead of earnings due to be released after the close on Tuesday.

Tuesday started on a positive tone and AAPL moved ever higher heading up to 378. Since I'm fully invested and almost out of free cash, the only way to participate was to buy deep in the money calls. So I bought 1 August 350 call in each account for $32 for about $3200 investment per account. If the stock gapped to $400, I would make $1800 per account, or lose it all if the stock gapped down to $350.

I was glued to the TV at 4:30PM EST when earnings came out and the news was good. The high estimate was $6.62 per share and AAPL reported $7.79 blowing away even the most aggressive estimates! The stock gapped up to $400 briefly in after hours trading and I started counting the profits in my head. Let me see $1800 per account times 2 or $3600. What if the stock trades up to $420 in the next day? That would be another $4000 and the spillover to other tech stocks could pull the entire market up. I could easily have a $10,000 dollar day and I can count on one hand the number of times I've been up 10K in a single day.

Wednesday rolled around and I was a bit disappointed to see AAPL open at about 389, quite a way off the $400 level. Earlier in the week, the guys on Fast Money mentioned they saw someone buy 10,000 contracts of the weekly 390-395 call spread for a total of about $1.5 million. If the stock closed above $395, that position would earn $3.5 million. It occurred to me that the weekly options were actually keeping a lid on the stock, and that there was considerable pressure for the stock to close the week under $390 so that call spread would expire worthless.

To make a long story short, APPL shares started to come in and I sold my calls at about $38 and instead of making 2K per contract, I only made about $600 per contract or about $1200 total. Not the 3.6K I had coming, but still not bad for one day's work. The story doesn't end there.

IBM had an incredible day on Tuesday reporting great earnings and gapping up about 8 points on the day and forming what Oliver Velez would call a "bull elephant candle".

Wednesday brought Happy Birthday wishes to our friend and benefactor Daniel Fernandez who turned just 25 years old. Daniel has already accomplished more at age 25 than many people do in a lifetime, so Happy Birthday Daniel and keep up the great work!

Thursday brought a monster breakout in health care technology play SXCI which moved out to a new all-time high on monster volume. Overall corporate earnings have been great with something like 75% of S&P 500 stocks beating analysts estimates.

On Friday, AAPL started to challenge $390 once again and my breakout antenna started twitching once again. So this time, I bought the August 360 calls for about $31.60 or about $1.60 of premium which is nothing for an almost $400 stock. Like magic, the shares rallied and closed the week at about $393 and I'm still long these contracts. I suspect we will see $400 next week and pickup the other $1000 left on the table from the prior trade.

As for Forex, it was another lackluster week with nearly every system giving back a few percentage points. Just to show you how bad that bad can be, take a look at Atinalla No 4 which on Thursday broke a string of 13 consecutive losing trades! This account was down about 7% for the week. Most of the other accounts gave back a percent or 2, getting whipped around on one false breakout after the next.

As for world events, a debt deal for Greece in the Euro Zone gave the Euro a lift. Also, talk of a more coordinated central bank in Europe for debt issuance took some of the pressure off the weaker players in the EU.

The debt ceiling issue in the US remains unresolved. The stock market seems complacent, as though it will all get worked out at the last minute. Nobody really knows what's going to happen, but it always seems to work itself out. As for now we will stay with the market action which seems to indicate higher prices ahead. Besides, fear and pessimism are always a poor investment thesis.

Next week will bring more fireworks with Amazon and Netflix earnings on Monday. Also, I'm on vacation from my regular job, off to enjoy some hard-earned time off. Have a great week!