Thursday, April 28, 2011

Temporary Top?

My observation is that 1356 ES (1358 SPX) is an area of resistance from which price is likely to at least temporarily retreat.  Bought 50 short term ITM puts (SPX strike 1365) near the close and shorted 1356 in the ES.  Willing to take just a little heat on these positions during the first hour tomorrow, but will dump soon thereafter if the bulls are active.

I note that the last trade in the SPX 1360 options today was a straddle 150 times for a total investment of $100k plus.  I think someone else anticipates a similar move down tomorrow.  Interestingly, both of us have the same relative risk on our position (per trade cost for both positions is roughly $7), but I've got a higher delta and he's got a higher theta, and my position has significant intrinsic value (all of which benefit my position if price stays the same or moves down from here).  He's only in a better position if there's a huge gap up tomorrow...something that I don't consider is likely after several uptrending days.  If anything, I think there's a possibility for a bit of a gap down tomorrow (trapping and panicking the late bulls that pushed price above resistance in the last hour of trade).


Note the slight new low in the VIX today (by like $.03)...not enough to convince me that the bulls have the wind at their back.

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