The Risk I was Willing To Take

I was wrong most of yesterday and bought a lot of calls into a bad tape all the way down. The big question might be Why?

Well, for one thing, it was my trading plan for the day:

There is still an open Fibonacci projection down to 1249 on the cash index which would nullify the a-b-c-d-e triangle I mentioned over a week ago. I will trade this range with SPY calls and short e-minis. Yesterday's 1307 high is a good upside target.

The bad part of yesterday is that I never got my e-mini hedges on. Believe it or not, but had I succeeded, I would've shown a hefty profit by day's end. I only got a small piece of the SDS which was near worthless for my purposes.

The additional reason for being long was that until 1258.07 gave away, the upside potential was extremely worth it to me. Had 1258.07 held, in my work that is, the price odds would've immediately shifted to 1370 and possibly 1400. That was a risk I was very willing to take in a market that has thwarted bears for over 2 years running.

It is also a prime example of why I use options when I want to speculate. Had I tried the same thing with e-minis I would've nearly blown out my account. I was fully prepared (that means mentally) for the futures to be down another 15 points this morning on the way to 1220. I believe we'll get there at some point. But for the time being there is the not-so-small matter of the enormous bets to the downside by an awful lot of suddenly bearish traders who bought 7X more puts than calls yesterday in the SPY. The market (and quite a few market-makers within it) loves to take candy away from babies.

I'm not looking for much upside, just enough for me to hedge out my risk and possibly unload some of it too. 1265-1267 on the S&P cash would be a great first stop (38% retracement). Maybe even 1285. Again, I usually only chart the cash index because it doesn't trade and I feel it gives more accurate levels -- levels that the much larger players are looking at. Just like when I'm offshore, I'm interested in what excites bluefin tuna as opposed to sardines. Tuna hunt and eat sardines.

Thanks again go out to Nicola Duke @NicTrades who taught me a cool trade yesterday that I'd never heard of. Hint: Marabuzo. If you want to know more, you'll have to follow her. Lots of people do, and I'm glad to be one of them.

I finally made a nice trade on a 6S short (Swiss FX futures) and took it off this morning. But it was rather sloppy, so no patting myself on the back. Just taking the money and being thankful for it. The franc may be starting to tip its hand here.

The US dollar has surprised me of late with its resilience, but I still lean toward new lows below the May lows.