6 Jan 2011

Market Overview:

The ADP employment report came out unbelievably better than expected today. This turned the market around from being down to setting new highs. Weekly jobless claims and chain-store sales will be released tomorrow. A lot of the individual stocks I follow are showing overbought conditions, as is the SPY, so I'm expecting it to be a struggle to go higher from here.

SPY Option Trading:

I started the day worrying about the weekly 125 puts I sold yesterday and ended the day adding to my short weekly 128 call position and worrying about that. I have now used up all my bullets. I got nothing left. If this market breaks above 128, then I'm going to get hit with a margin call, at which point I will probably roll out of this week's SPY call options and roll into next week's. If we happen to get a pretty good pullback tomorrow I will look to sell some weekly 126 puts as I still have the margin to do that.

Key Levels in the SPY:

Resistance: 127.73 (Today's High)

Support: 127.50, 127, 5-day SMA (~ 126.60 right now), 126.50, 126.25

Individual Stock Trading:

RIMM:

RIMM played out just like I expected. I couldn't play it though because all my capital was tied up in short SPY call options. Pity the fool.

NFLX:

Since about 1 Dec 2010 NFLX has been trading very similar to RIMM. Both stocks hit highs on 1 Dec 2010 and have since pulled back. I'm not saying NFLX is going to break out to the upside like RIMM, but it looks like NFLX is starting to get trapped in a tight range between 175-185, near its 20 and 50 day SMAs. I would play this, like I wanted to play RIMM, by waiting for the big volume break out of this range, either to the upside or to downside and then play it in the direction of the break.

See my trading log below for my current open and closed positions for the month.