Wednesday, July 12, 2006

Magic Number is 1255

Nothing really majical about it - it's just a Fib confluence on the SPX. However, this level will result in a bounce and, more importantly, by the time it is reached the NDX-100 will be overstretched far into oversold levels.

BTW, the VXN is much "cheaper" than what it was when the Nsdaq made its previus low. Lower vol is generally regarded as less bullish, but I read this completely the opposite. We're "post-crash" and the anxiety jsut isn't going to get to where it was. Thus within the context of "exhausted anxiety", VXN spiking up to this level is actually bullish.

What we are doing:
  • Buying a bunch of oversold delta. The likes of NTAP, BBY, WHR, etc.
  • Looking to get long SPX futures for a trade.
  • Covering short deltas on previously overbought names (CVX, PG, etc.)
  • Selling vol on uptrending, but overextended (to the downside) issues.
No sector view, except that I do think Semiconductors are a probable play to the upside.

Cheers,
/Dmitry

3 Comments:

At 4:16 PM, Blogger traderaaa said...

In buying delta are you selling the stock and buying calls, buying straddles or something else?

I think your idea is pretty sound but I think volatility needs to get more overbought first.

 
At 11:50 AM, Blogger Dmitry said...

We buy delta via long stock or long calls. When you sell stock/buy call you're looking to be long gamma and that's a different trade.

Sometimes we'll get some long delta via short puts with capped upside (but if we do that we're trying to be mostly long theta)

Vol likely will get more overbought but this is a good level for the contrarian play. I hope you are right though :)

Cheers,
/Dmitry

 
At 3:17 PM, Anonymous Anonymous said...

best regards, nice info
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