Tuesday, February 7, 2012

Commodities leading the rally

Once again the morning dip was bought, but this time indices were up almost equal. In fact, big caps had a minor advantage over other indices, and small caps lagged the most.
The big news factor today was, you'll never guess, Greece! The market is still hoping there will be a solution without Greece defaulting and/or leaving the euro... The euro spiked huge on the news and broke out of the bullflag, formed the last week-and-a-half.

5m-chart SPY:

Daily charts DIA, SPY, QQQ and IWM:

Metals, euro, oil; they all went up hard this morning! Indices were lagging, but also rallying. Especially the rally in oil was breathtaking. Oil didn't move much the last couple of weeks, but this morning it was up 2.5% in 2 hours time. Not that silver or gold were doing that much worse.

I took on a bull risk reversal option strategy in FXE (the ETF for EUR/USD).
It's a trade with a bullish expectation, buying an OTM (out of the money) call, selling an even further OTM call and selling an OTM put. I bought the June 136 call, sold the June 140 call and sold the June 123 put. All this for a credit of $20 per 'pair'. To make a profit (apart from the credit received), FXE needs to stay above 123. It becomes really profitable above 136 and maximum profit is at 140 or above by June expiration.

However, if FXE closes below the 20MA (purple line on chart below), I'll manage the trade. Possibilities are reversing part of the position (I opened several 'pairs'), or for example selling the 136 call and buying back the 123 put. That would leave the short 140 call which would have to expire OTM to keep the premium received.

Articles for tonight:
Sticky Level
The Power of Positive Feedback
Email from a group member
Dr. Doom is bullish, sell everything!

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