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Show Me the Volume

Published on May 22, 2009

Show Me the Volume

May 22, 2009

I hope you benefited from the 3 free trades ideas I shared with the Basic Members of OptionPundit (You may signup for the basic membership that is free till Dec 2009).

  • POT Trade was closed for +35% within two days. Here is the e-mail I sent to Basic Members-

POT is having tough time crossing $115, volume has also been declining for past several days on each rise. A bear debit vertical spread (Jun Put 115/105 or 110/105) for 1-2% of capital maybe a good speculative idea to play a pull back. (This is not for official OPN trades)

  • Earlier I mentioned about GMCR, though it has not fallen much since that post, The Covered Put Strategy is already making money and has potential to deliver nice profits.
  • This was another trade on GDX that has almost doubled since GDX crossed $39 (Assuming one had near OOM calls)-

Here is another thought for a potential trade- I am generally bullish on gold (and been vocally so since Bernanke cut his first interest rate during late 2007 and I called out, in Oct/Nov’07, potential bear market ahead). $39 is a resistance area for GDX and so is about $1000+ for Gold. If you have risk appetite and capital that you may afford to have losses on, get into straight calls for either GLD or GDX. Gold hasn’t seen the mad rush yet and I think next leg lies ahead of us. But don’t be greedy and risk only what you can afford based on appropriate capital allocation.

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A lot is going on. The short term rally from the May 15 low has been driven by low volume. Typically, low volume rallies seldom succeed in extending price gains.  At the same time though, in order to confirm the extension on this fall,  the index prices would need to decline to below their May 15 low, creating a lower low, preferably on increased volume.

I don’t think much will be achieved today as a lot of traders might be staying away due to long Weekend. Prices may move in either direction but the true underlying trend will become clearer post holiday next week.

UK is on negative watchlist. Ratings agency Standard & Poor’s lowered its outlook on Britain to negative on Thursday, citing government debt that would be hard to rein in and political uncertainty about the policy response with an election looming. The agency affirmed Britain’s ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings.

Is US about to lose or even put to “negative” watch list? The dollar dropped to its lowest level this year this morning and was on track for its biggest weekly fall in two months on concerns about the AAA-rating status of the United States. T he dollar index is on the verge of breaking down through the 80 level. There might be some sort of support here for dollar but nothing is sure in this environment. This fall is giving some temporary boost to Agriculture and commodity related stocks (POT, CF, AGU, MOS).

A mix picture, is it the beginning of the new leg down? is it just a pause for the Bulls? And many more. Hope for the best but prepare for the the worst case scenario i.e. What if the light at the end of tunnel (or call it green shoots) is another locomotive?

Trade carefully, Trade Profitably, OP

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