We said we expected volatility to pick up this week and if the next 3 days are like the first 2, Wall Street will need a drink. After zooming 34% on Monday, the S&P 500 Volatility Index ($VIX, 16.87, down 2.12) dropped over 10% on Tuesday as the bulls rebounded to recover half of the prior session’s losses.
The volatility is great for option trading but in this type of environment it is important to use limit orders when getting into new trades and once they are profitable to set Hard Stops. You can also close half of the trades when they are up and let the rest of your options ride by setting stops on the other half to protect profits. There will be some slippage but all we are looking for are “quick hits” on cheap options that give us high double-digit returns with an occasional triple-digit winner in this type of environment.
The whippy action that started from last week stopped us out of 3 profitable trades yesterday for gains of 42%, 10%, and 17%. The 2 trades that we closed for 10% and 17% were up over 60% and 80% so this is what we mean by slippage. We still made some decent 5-day profits but we were a little disappointed we couldn’t get you triple-digit profits. Don’t worry, we have more coming. Our 2013 Track Record is now up to 23-7 for 2013 which equals a 77% success rate.
The levels we said to watch for into Tuesday’s close were: Dow 13,900; S&P 1,495; Nasdaq 3,125; and for the Russell (2000) – 900. Once again, we nearly nailed every single close so let’s go see what it means. (continued…)
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