Playing a Near Term Bounce (UPS,HD,USO,XLE,DIA,UCO,EWJ,HYT)

Playing a Near Term Bounce (UPS,HD,USO,XLE,DIA,UCO,EWJ,HYT)

Before we look at a number of trades that came due with the January options expiration, just a quick word on the stealthy manner in which the market operates.


We say ‘stealthy’ as if the market actually had a mind of its own and some sort of character or personality, but it’s not actually the case.

NYSE trading floor



What is true, is that at any given moment the market takes on the personality of its participants, morphing into a being completely different than it was an hour or day or week before as the collective inputs of traders large and small, all their fears and desires and greed and loves and hates are amalgamated into what we call ‘today’s market’.


It’s a monster of our own making, really, and somehow (don’t ask exactly how this works) the beast always knows better than any con man or thief how to separate us from our hard earned cash. That’s in fact the job of the stock market – to reach deep into your pocket and wrench from you whatever it finds there.

blonde slap

So Vulgar!


It’s actually quite a sophisticated and smooth operation, which is why we use the term ‘stealthy’. You’ll never sense it happening, never feel it. If you did, you’d resist. You’d close the trade in question and get on with it. The market would simply have to find a stealthier means or a different time to approach you. But be sure, it happens to everyone.


The latest example of this comes from the precious metals sector, where in just the last couple of days, while everyone was wringing their hands over continued weakness in oil, the developing crisis in China, and a waterfall equity decline here at home, the gold miners fell to new bear market lows.


Have a look –

gdx technical

As you can see, the damage has now been done. And even if we get a bounce from these levels, or just stumble about between $12 and $14 for some time, it’s a certainty that the trend will continue lower.


And it all happened while no one was looking!


Gold miners are the proverbial canary in the precious metals mine, often indicating future price movements for gold and silver better than the metals themselves.


It’s therefore very likely a new move lower for the precious metals is in the offing. Forget about last week. Forget about bounces. A new reality has arrived. Be short. Not long. ‘Nuff said.


Lots of Results to Report


Let’s start with a trade we opened way back on February 17th, 2015 in a letter called Academic Trading Strategies. There we urged you to buy an XLE December 31st 100 CALL for $0.91 and sell a USO January 15th 26 CALL for $1.00. Your credit on the trade was $0.09 per pair traded.


And then… nothing happened. All options expired out of the money, and we’re left with our initial $9.00 credit.


Next was a trade form the 3rd of March. The letter was entitled The Disconnect Between Markets and Economics and the trade was a purchase of a deep-in-the-money SPDR Dow Jones Industrial Average ETF (NYSE:DIA) January 150 CALL. It cost us $34 to put on and DIA expired last Friday at $159.68. Our loss on the trade is 71%.


We move on to April 7th, when we recommended purchase of the UCO January 10 CALL for $1.40 and sale of the EWJ January 14 CALL for $0.16. The letter was called What Silver and Oil’s Rebound Mean for Global Trade, and the total debit on the trade was $1.24.


And that’s our loss. Both options expired out-of-the-money worthless last Friday.


The trade we offered on the 17th of December was a long position in HYT. The letter was called The Turning Radius of an Aircraft Carrier, and in it we also set a stop for the stock at $9.25.   The stock was then trading at $9.77.


The stop was triggered a few days ago making for a loss of $52 on the trade.


Finally, we turn to last week’s endeavor. The letter was called Once…Twice…Three Times a Lady, and there we documented two successful trades using Home Depot, then offered a third.


Today, it’s time to close down one side of that third bet in anticipation of a bounce higher for the stock. The details are as follows – we recommended buying the HD February 26th 122 PUT for $4.95 and selling two (2) February 26th 116 PUTs for $2.49 each. Total credit on the trade was $0.03.


The long 122 PUT is now fetching $7.60, and we’re recommending you take it off the table. Sell it and await further instructions on the outstanding open shorts.


Last up is our November 5th initiative. The letter was called Short Squeeze Leads to a Kick in the Bulls, and there we urged you to buy the UPS January 105 CALL for $2.12 and sell the UPS January 100 PUT for $1.71. Total debit on the trade was $0.41 per pair.


As it turns out, the short PUT ended in-the-money, so we own 100 shares of UPS stock today, at what we feel is an interim bottom for the stock. We’re therefore holding the shares and issuing a new UPS trade to avail ourselves of the bounce.


Have a look at the chart –

ups technical

After nearly four straight months in decline, UPS is ready for a bounce. Significant is the long tail intraday reversal pattern (red circle) that aligns with similar, more pronounced reversal patterns on all the major indexes. We saw this occur exactly a month ago (black triangle), when UPS stock jumped 7% in just a few trading sessions.


The trade we’re recommending here is attuned to the prospect of a quick bounce. It’s called a covered ratio spread – essentially a covered call with a bullish spread layered over top. And it goes like this –

[mepr-rule id=”994″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule]

[mepr-rule id=”204″ ifallowed=”show” description=“options_trader_elite_members_only”]

Options Trader Elite recommends you consider 1) closing down your long HD PUT as detailed above and 2) selling two (2) UPS March 95 CALLs for $1.03 each and buying one UPS March 100 CALL for $0.29. Total credit on the trade is $1.66.


[mepr-rule id=”988″ ifallowed=”show” description=”executive_lounge_members_only]


Many happy returns,


Matt McAbby

Leave a Reply

Your email address will not be published.*

Powered by WishList Member - Membership Software



Enter your e-mail address to claim your FREE Special Report “The Seven Deadly Secrets of China”

You have Successfully Subscribed!