Green Forest
Capital Management, LLC
Exploring option flow tonight. Generally when we trade options its to hedge risk, hence the term: hedge fund. Sometimes this risk is direction based where we want to be long X, but we don’t want to risk too much, we’ll buy our position in calls. This enables us to structure our risk on getting into a position. Othertimes it’s a straight hedge against a position. So we own GOOG at 515 and we want to lock in our gains at 600 so we buy 600 puts.
But we want to start looking into institutional option flow or strange option activity. This first post is simply a documentary post to put our readings up. In few weeks, I’ll return to this post and see how it turned out.
Overview:
Telephone company a long term buy? Since when? They’ve acted like grandpa stocks forever. Slow movers. Well, don’t worry, it’s not sprint. And the technicals are indicating that there could be a decent move coming their way. VZ has been setting up a massive cup and handle. Just how massive? Well, it’s a cup and handle that has been in the making since 2008. There are a few cautions.
- It was a rather deep cup.
- The base was a bit on the sloppy side.
Zagg on the trendline looks like it may present a decent risk/reward buying opportunity in the near future. Buy around 9.75 with a stop on a close below $9.
Today I wanted to add a few themes to study. This is mostly for my own personal studies, but I figured I could share them with thew world. There are patterns in the market; this much I know. But sometimes the pattern that you think you see, doesn’t actually end up working out. The key to playing the pattern is that you find a pattern that offers a good risk:reward. That way if the pattern is a low probability pattern but the reward it high, the number of failed patterns is offset by the profit from the few times it does work. So, with that in mind, I want to focus on two patterns today. Two themes, if you will. The first theme is in this post and the second theme will come in another post.
Because I should be studying schoolwork tonight, I’ve decided to avoid that and study bubbles instead. So basically we are in the midst of witnessing the end of two bubbles popping. First we saw Netflix (NFLX) pop after topping out at 304 (I had shorted it at 298 that day… but covered at 290–read about it elsewhere on the blog), then we saw Green Mountain Coffee Roasters (GMCR) get roasted (sorry!).
Just a quick update on the watchlist:
Most of the names from my watchlist this week are still in play. Here are a few additions, though.
Below are some of the charts I’ll be watching going into next week; but first–an overview.
The SP-500 is the index that I prefer to follow, I do check in on all the others, but it is the one I base my main position on. I find it to be the most balanced look at the market. I really liked the action this past week. I saw quite a few stocks breaking out and many more setting up. Further the fact that all the dips are being bought up in the morning and that all the bad news is being bought up tells me that all the money that has been on the sidelines is looking to get in. The fund managers need to get back into play if they are going to keep up their performance numbers going into the end of the year. That said, I do see a few things that we’ll need to watch out for going into next week. They are:
I’m noticing quite a few failed breakouts today. I participated in some and watched others. Activision (ATVI) seems to be the only breakout that is really working (so far). The last time I noticed so many good looking breakouts failing it signaled the top of the rally. Now I’m not saying that this is a permanent top; that we are going back to the lows. All I’m saying is that the market isn’t ready to see higher yet.
Two of the failed breakouts I was watching: CELG and DSW (charts below).
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