Meta-Trader - Delta Seven

Welcome back, Meta-Traders.

It was another spectacular week for the bulls with new, 5-year highs in the SP-500 and my portfolios. I took some pretty good profits in Facebook (FB) and RIMM. I also had winning directional trades in NFLX (thanks John Carter) and AAPL. I am also learning a lot from John Carter and SimplerOptions, more on that below.

Sometimes in the course of watching price charts, I see subtle changes in behavior. The behavior of the price action around certain price levels gives you information that you can’t get anywhere else except by looking at the chart. Case in point is CTRX – Catamaran which is the former SXCI Health Systems.

I have been long the stock since they were SXCI and it has recently run up against resistance in the 52.5 area. I wrote some options against the stock and collected some premium on that same contract selling at about 1.20 and covering below 0.50 twice over the past few weeks. Recently I noticed change in behavior and I closed the short option position and went long more shares and CTRX is now my single largest position at about 9% of the portfolio

The chart of CTRX seems to be tracing out the right side of a 6-month cup-with-handle pattern. The way it has repeatedly attacked the 52.5 level, and the speed that it bounced back after recent sell offs has me buying more. Earnings are due out on February 18th.

Here is one simple thing I learned from John Carter and SimplerOptions.  When buying options for directional plays, buy the cheapest option you can find with a delta 0.7 or above. That number means the option will rise 70 cents for each $1 move in the underlying. Exercise to the reader - can you find the delta 0.70 option in the graphic above?  If so what strike would you buy?  FYI - the symbol is LinkedIn (LNKD) for next Friday expiration.

Regarding TradeStation, I learned the following:

• There’s a monthly data fee of $1 each for NYSE, AMEX and Nasdaq and $3 for Options Data. So that’s $6 a month and I think I can handle that.
• My account was limited to 3 day trades in a consecutive 5-business day period. To get around this limitation, I need to have at least $25,000 on deposit. Taking care of that.
• John Carter does most of his options trading inside the ThinkorSwim (TOS) platform and not inside TradeStation. I have used Tradestation for simple directional’s, but not sure how well it handle more complex positions that John puts on.  We'll see how this goes.

Another huge thing I learned is to Trade the Close!

By 3PM,  most of a daily bar of price action has already been formed. Trading the close allows you to get ahead of the next day’s price action before the move happens. It’s sort of like betting on a horse race after the race has already begun. You wait around to see which horse is going to win, then bet on that one! It’s so obvious; I can’t believe it took me so long to figure it out. Note to self: Scan the market after 3PM for “bull elephant” bars in the day’s action. That’s where tomorrow’s winners will be found.   Fortunately, TC2000 has a built-in scan called "Poppers" which fits the bill perfectly.  John Carter enters most of his positions on the close and usually joins the SimplerOptions room at about 3:15 PM EST and stays through the close.

A recent case in point is RIMM. We had a huge daily price bar on Friday 1/11/2013. In fact, looking at the price bar – it was the biggest daily price bar in months! Buy that bar before the close of the day. The result was the stock closed the day at 13.56 and opened the next trading day at $13.90 and hasn’t looked back since!

Finally, it was an interesting week in Forex.  Forex system Sunqu is leading the pack with a year to date gain of +4.51%. This system is a bit of a black box, but has the advantage in that its behavior is so opaque, the market makers can't figure it out! Sunqu was reviewed previously on this blog here.

That's enough for now, enjoy your weekend and get some rest.