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spy5day

After my recent loss in the spy put hedge I use, which you can read about here, I am back to day trading the spy put on weakness and Friday saw some weakness.

The market in my opinion remains incredibly soft and any bad news out of Europe is going to have repercussions. I am back using the 5 period simple moving average (SMA) for my daily trades in the spy put.

Friday was no different. The market gapped open, which by the way if you have been reading my recent market direction calls, is a clear sign of bear market activity. The constant gap opens, now more than 27 in the past 35 trading sessions, rarely occur in bull markets but they are a constant part of bear markets. After the gap open the 5 period SMA flattened and I bought my SPY Puts.I chose the 22OCT11 $122 spy put.

Within the hour the market sold back down to retest the gap open and I sold my Puts for about 11% return.  You can view the trade details through this link to my spy put trades for 2011. Scroll down to September 16 2011 to view today’s activities

Spy Put Trade - Sep 16 2011

Remember when I am doing these spy put trades I am also using the ultimate oscillator. For day trading on the spy put I find that the standard settings are fine, however I use the settings below which I have found seem to tweak the daily overbought and oversold indicators.

Ultimate Oscillator settings

Ultimate Oscillator settings for day trading the SPY Put hedge

By combining the ultimate oscillator with the 5 period simple moving average I find I get fairly consistent results. Again though, just for day trading.

Again just to mention, by using the ultimate oscillator with the 5 period simple moving average for my spy put hedge, I am combining my strategies which I have discussed and linked to numerous times. However for those who are new to my site, these are the strategies I am referring to:

Spy Put Hedge strategy 1  |  Spy Put Hedge Strategy 2  |  Spy Put Hedge Strategy 3: The short version

If you review those links it will help to understand my trading strategy which I mention often when discussing the spy put hedge.


To close out the day I was back buying SPY PUTS right around 1 PM in the afternoon. I bought the Oct$122.00 put again. I plan to hold these over the weekend as I believe the market is topping out. However the close for Friday was not bearish so I could be looking at some more losses come Monday. You can review this trade here and scroll down to Sept 16 2011. We shall see what next week brings.

SPY Put Hedge using the 5 period simple moving average for Sept 16

  • Stephane

    Teddy

    Great content !
    I think the 5MA is not a 5 day MA but a 5 bar period.

    Thanks for your website

  • Teddi

    Hi and thanks for your comment. The 5 day is the 5 day simple moving average. You may think it is a 5 bar period because it is being used for a daily trading period, but it actually is the 5 day simple moving average. The chart I show is just the part for the day, but I have in front of me during trading the 5 day simple moving average over a 10 day and sometimes 21 day period.

    For those who are really technical, here is a great explanation from stockcharts.com on simple moving averages and how they are calculated, versus exponential moving averages.

    Teddi

  • amit

    Hello Teddi,

    I have a question here. Are you concentrating on what time frequency when doing these trades.It seems like the 10 minute chart but can you please confirm. When doing the day trades what time frame would you suggest that we should look at.
    I am a little new to technical analysis and still learning. The first downturn was a bearish engulfing pattern but I without the ultimate oscillator I would have been stopped out earlier. Could you please provide a primer on the ultimate oscillator if you dont mind so we could learn from you.
    Could you provide a rational on why the above parameters for the ultimate oscillator works.

    Thanks
    Amit

  • Teddi

    Hi Amit
    The chart above is 5 minutes. I flip back and forth between 1 mins and 5 minutes during the day. If I am waiting to buy I usually set the time for 1 minute, sometimes 2. After I buy I flip to 5 minutes and wait for the point to sell.
    As to the ultimate oscillator read this article Hedge Strategy – The Short Version which discusses the ultmate Oscillator.
    Teddi

  • NJSteve

    Teddi,
    I was introduced to your site today by a member of my option club. I’m very impressed with the site and your detail and candor. I have two questions please?
    1) I’m wondering if you could comment more on how you were able to so perfectly nail the early afternoon high of 121.60, where you bought 20 SPY puts? Looking at the 5 day SMA it was still steeply climbing (although as you point out it peaked minutes later) so I don’t see how that was much help. Also, I brought up a Ultimate Oscillator chart (which I’ve never used before) at Schwab and plugged in your values. It looks mostly the same as the one you half posted, but it is slightly different. It shows that around the time you did the trade it was running flat half way between the midline and the overbought line so that doesn’t seem like much of an indicator that could help much. So was it just a good hunch, or was there something else such as a news story that you heard that also helped convice you to put the trade on when you did?
    2) Now concerning your exit point and deciding when to sell and what you were looking to have happen. Half an hour after you put the trade on, at 1:20, it looks like the oscillator crossed the bottom oversold line (at least on my chart) and was also below the 5 day SMA reaching a low shortly after that. Why didn’t you decide to sell then? Obviously, we have been looking at 5 up days so the market is due for a correction. However, since your recent loss, I would think you would not be looking to hold over the weekend. Did you have a set minimum amount you wanted to make that wasn’t reached or did something esle effect your decision to hold over the weekend, or were you just expecting a larger loss that afternoon?

    BTW, your results this year concerning SPY puts are certainly very impressive. Thanks again for sharing.

    Steve

  • Teddi

    Hi Steve
    On the ultimate oscillator – I use it all the time and after more than a decade I have a pretty good feel for the Ultimate Oscillator. Due to this I do not have to wait for a perfect indication. Years ago when I first starting relying on the Ultimate Oscillator I would lean heavily towards getting that perfect call. Today I don’t. As to why your chart may be slightly different, a lot seems to depend on the feeds. I know that I have accounts with Think or Swim and Interactive Broker which both differ slightly. When I complained in the past they told me it is due to feeds from the providers. If volumes are late to arrive evenby half a second, the readings can be slightly off.
    As to the 121.60, I don’t nail anything, LOL. I have mentioned in the past that these are the strike prices that I saw around the time of the trade. My site is not in real time (you can read about that under the drop down – About Me & My Strategy in the top navigation bar), so I do my best to try to indicate the price point the stock or ETF was at when the trade took place, but remember these are from a glance at the screen and sometimes I get a fill but only find out an hour later or longer because I am busy doing other things and I have to go back and try to figure out from tickets, about where the stock was trading.

    I believe though that prices are important so readers can get a better understanding of how options work. As you and many readers know, a movement of just a few cents can alter the price of an option. i try to show prices right around the time of my trade so that investors begin to understand that you have to have confidence in your ability and your outlook. Once you have that confidence, when you see an opportunity you can grab it. By showing prices, in all my trades, I hope investors begin to realize that if you are confident you can get some truly terrific prices. Remember though, these are stock or ETF prices from a glance of the screen. Nothing is in real time. I try my best to reflect what was occuring at that time, but I am just a single investor trying to share ideas and strategies but my investing takes priority.

    This morning is a great example, I sold my 20 spy put contracts from Friday’s afternoon purchase and got a great price, but not the lowest.

    As an investor it is important to decide what are your price points. What would you be happy attaining. Then you set up the trade. If On Friday I had bought the spy put contracts and then the market had moved higher, I would not have sat and been upset. Far from it. The prices I received were what I anticipated and wanted.
    It takes that confidence to say “This is a price I like and I am happy to buy or sell at that price”. No looking back, no second guesses.

    Investors lose constantly at options because of their lack of confidence. Drop emotion from the trade, pick your points, watch the chart, jump in when you are happy with the price. On Friday I saw the opportunity and took it, just as I saw the opportunity to sell an hour later.

    Friday was, I think, pretty obvious to most investors who follow the market daily, a sideways day with the bias to the downside. The market has had a nice run up, but as I said in my SPY Put trades during the week and market comments, this is just a rally in a bear market. Hey, I could be wrong, but I never second guess. With my outlook, I can then make the trades confidently.
    So it’s not a hunch or a news story as rarely do I have the news on. Its years of trading and being confident in my trades. I do not second guess.
    As to your second question I can’t really comment as my Ultimate oscillator chart will be old now so I am not sure how to answer that one. When the market fell, I saw in the Ultimate Oscillator an oversold indicator. The return was fine at about $500.00 for just 10 spy put contracts for an hour worth of work. Again, its confidence. The indicator said oversold, I therefore sold and waited to buy puts again.

    I knew though that i wanted my spy put contracts for the weekend. Honestly, who thinks Greece is not going to default but they were not going to do it Friday in my opinion. It is not rocket science. It’s investing. I believe Greece will default but the powers that be will make sure when it happens it is after hours, which because of the way markets trade, means weekend is about the only safe time.
    Meanwhile the other European Governments need some time to get their banks in order. So no way would there be a default on Friday. But over the weekend I was pretty sure there would be some bad news.
    Last week the bulls had their day as the news out of Europe was suddenly quieter and more positive. That’s what they need to get their houses in order for the coming default.

    I bought my spy puts and then headed out to a late lunch with friends. I bought them for over the weekend and if I was wrong and the market bounced higher, then I would close, take the loss and wait to buy again. That’s what my cash cushion is all about. It’s my mistake protector, I suppose you could say.
    You can read about that in the spy put hedge strategy articles.

    I hope I answered your questions. Just remember that confidence is key to investing success. Everyone is worried about new all time lows. Lows lower than March 2009. But the end of the world is not here yet and anyway, if the end comes then it really doesn’t matter if I am invested or not. People worry way too much about the market. Forget the market. Put in place great strategies and enjoy the volatility. I had some great trades this morning and I am looking forward to more over the coming weeks.
    Teddi

  • NJSteve

    Well, you certainly nailed that trade!!!

  • Todd

    On ThinkOrSwim, I haven’t been able to replicate your settings for the Ultimate Oscillator unfortunately. It seems to only have options for Fast, Med, and Slow length. I do not see factors anywhere. When I enter in 5, 10, and 15, the patterns do not match yours. Any adjustments that can be made? I would be very interested in trying this strategy.

  • Stephanev

    same for me … ThinkOrSwim , ameritrade or Fidelity don t seem to give these options.
    Teddy what platform do you use ? it looks like Ameritrade ?

  • Teddi

    For my Ultimate Oscillator I am with TD Waterhouse and have been using their charting services for years. You could consider calling your discount broker and asking them to show you how to set up the options for the Ultimate Oscillator. As well, you can show them my webpage with the Ultimate Oscillator settings image so they know what you are trying to set.
    I am not sure why it would be different with various discount brokers, although I know when I use active trader plus through TD Waterhouse, they do not even offer the Ultimate Oscillator.

  • Teddi

    It looks like Ameritrade because I use TD Waterhouse. TD owns TD Ameritrade. I live in Canada so I use the Canadian division but I would think it should be somewhat similar through TD Ameritrade. I suggest calling your discount broker and asking for the tech support department and see what they can set up.
    The Ultimate Oscillator is a very good tool. I am not sure what other services offer it but there are many on the internet. Surely some of them have to offer the Ultimate Oscillator.

  • http://www.fullyinformed.com Teddi Knight

    For my Ultimate Oscillator I am with TD Waterhouse and have been using their charting services for years. You could consider calling your discount broker and asking them to show you how to set up the options for the Ultimate Oscillator. As well, you can show them my webpage with the Ultimate Oscillator settings image so they know what you are trying to set.
    I am not sure why it would be different with various discount brokers, although I know when I use active trader plus through TD Waterhouse, they do not even offer the Ultimate Oscillator.

  • http://www.fullyinformed.com Teddi Knight

    It looks like Ameritrade because I use TD Waterhouse. TD owns TD Ameritrade. I live in Canada so I use the Canadian division but I would think it should be somewhat similar through TD Ameritrade. I suggest calling your discount broker and asking for the tech support department and see what they can set up.
    The Ultimate Oscillator is a very good tool. I am not sure what other services offer it but there are many on the internet. Surely some of them have to offer the Ultimate Oscillator.

  • http://www.fullyinformed.com Teddi Knight

    Hi Steve
    On the ultimate oscillator – I use it all the time and after more than a decade I have a pretty good feel for the Ultimate Oscillator. Due to this I do not have to wait for a perfect indication. Years ago when I first starting relying on the Ultimate Oscillator I would lean heavily towards getting that perfect call. Today I don’t. As to why your chart may be slightly different, a lot seems to depend on the feeds. I know that I have accounts with Think or Swim and Interactive Broker which both differ slightly. When I complained in the past they told me it is due to feeds from the providers. If volumes are late to arrive evenby half a second, the readings can be slightly off.
    As to the 121.60, I don’t nail anything, LOL. I have mentioned in the past that these are the strike prices that I saw around the time of the trade. My site is not in real time (you can read about that under the drop down – About Me & My Strategy in the top navigation bar), so I do my best to try to indicate the price point the stock or ETF was at when the trade took place, but remember these are from a glance at the screen and sometimes I get a fill but only find out an hour later or longer because I am busy doing other things and I have to go back and try to figure out from tickets, about where the stock was trading.

    I believe though that prices are important so readers can get a better understanding of how options work. As you and many readers know, a movement of just a few cents can alter the price of an option. i try to show prices right around the time of my trade so that investors begin to understand that you have to have confidence in your ability and your outlook. Once you have that confidence, when you see an opportunity you can grab it. By showing prices, in all my trades, I hope investors begin to realize that if you are confident you can get some truly terrific prices. Remember though, these are stock or ETF prices from a glance of the screen. Nothing is in real time. I try my best to reflect what was occuring at that time, but I am just a single investor trying to share ideas and strategies but my investing takes priority.

    This morning is a great example, I sold my 20 spy put contracts from Friday’s afternoon purchase and got a great price, but not the lowest.

    As an investor it is important to decide what are your price points. What would you be happy attaining. Then you set up the trade. If On Friday I had bought the spy put contracts and then the market had moved higher, I would not have sat and been upset. Far from it. The prices I received were what I anticipated and wanted.
    It takes that confidence to say “This is a price I like and I am happy to buy or sell at that price”. No looking back, no second guesses.

    Investors lose constantly at options because of their lack of confidence. Drop emotion from the trade, pick your points, watch the chart, jump in when you are happy with the price. On Friday I saw the opportunity and took it, just as I saw the opportunity to sell an hour later.

    Friday was, I think, pretty obvious to most investors who follow the market daily, a sideways day with the bias to the downside. The market has had a nice run up, but as I said in my SPY Put trades during the week and market comments, this is just a rally in a bear market. Hey, I could be wrong, but I never second guess. With my outlook, I can then make the trades confidently.
    So it’s not a hunch or a news story as rarely do I have the news on. Its years of trading and being confident in my trades. I do not second guess.
    As to your second question I can’t really comment as my Ultimate oscillator chart will be old now so I am not sure how to answer that one. When the market fell, I saw in the Ultimate Oscillator an oversold indicator. The return was fine at about $500.00 for just 10 spy put contracts for an hour worth of work. Again, its confidence. The indicator said oversold, I therefore sold and waited to buy puts again.

    I knew though that i wanted my spy put contracts for the weekend. Honestly, who thinks Greece is not going to default but they were not going to do it Friday in my opinion. It is not rocket science. It’s investing. I believe Greece will default but the powers that be will make sure when it happens it is after hours, which because of the way markets trade, means weekend is about the only safe time.
    Meanwhile the other European Governments need some time to get their banks in order. So no way would there be a default on Friday. But over the weekend I was pretty sure there would be some bad news.
    Last week the bulls had their day as the news out of Europe was suddenly quieter and more positive. That’s what they need to get their houses in order for the coming default.

    I bought my spy puts and then headed out to a late lunch with friends. I bought them for over the weekend and if I was wrong and the market bounced higher, then I would close, take the loss and wait to buy again. That’s what my cash cushion is all about. It’s my mistake protector, I suppose you could say.
    You can read about that in the spy put hedge strategy articles.

    I hope I answered your questions. Just remember that confidence is key to investing success. Everyone is worried about new all time lows. Lows lower than March 2009. But the end of the world is not here yet and anyway, if the end comes then it really doesn’t matter if I am invested or not. People worry way too much about the market. Forget the market. Put in place great strategies and enjoy the volatility. I had some great trades this morning and I am looking forward to more over the coming weeks.
    Teddi

  • Frank

    Teddi,
    What would be the settings for the ultimate indicator on stockcharts.com. Thanks Frank

  • http://www.fullyinformed.com Teddi Knight

    Unfortunately I do not use stockcharts but I can suggest if you are a member contacting them. If you are not a member try posting this question on my yahoo forum and see what others have to say.
    Teddi

  • http://www.fullyinformed.com Teddi Knight

    Unfortunately I do not use stockcharts but I can suggest if you are a member contacting them. If you are not a member try posting this question on my yahoo forum and see what others have to say.
    Teddi

  • http://www.fullyinformed.com Teddi Knight

    I am asked this all the time. I must do up an article to point people to it. The Ultimate Oscillator is available through many discount brokers. TD Waterhouse offers it through web broker.
    Teddi

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