Tuesday, June 16, 2009

Stuck In a RUT

With yesterday's downdraft, the RUT now finds itself in the midst of a 30 min. downtrend. Now that we've broken below the last 10 days trading range, there is quite a bit of overhead resistance.
Consequently, it will be a tough road for the RUT to rally back through the range and break above it's major resistance at 535. As such, I will be considering entering July OTM bear call spreads on subsequent rallies into the range. Looks as if so far today, we may be presented with one such opportunity.
Currently the 570-580 July bear call is trading around $1.00 credit, which fits my personal preference and risk tolerance. The 570 call has a delta around 12, which puts the probability of profit at 88%. If we rally further, obviously I will adjust strikes as needed.

Tyler-

6 comments:

mark said...

ty It's Mark good post few questions though. I see why you said 570-580 but why does the 10 day ma conferm anything forwhy not the 20ma. Was the 10just so you could get into the trade quicker? thanks Mark

Mob said...

Hi Tyler, thanks for sharing your insights with all of us...

Apologies if I asked this before, but what software are you using for the option graphs shown in your images?

Charley240 said...

Hi Tyler,

What was the main driver that led you to decide on the Bear Call Spread? What other play could you have done with today's market conditions?

Clive

Tyler Craig said...

Mob-

The software I use for charting/risk graphs is the EduTrader. www.edutradersoftware.com

Tyler-

Tyler Craig said...

Mark,

In my post I said "now that we've broken below the last 10 days trading range". I was referring to the breakdown of the sideways consolidation we've been in the midst of, NOT the 10 day moving average. As far as MA's go, I had the 20 and 50 day moving averages on the charts I displayed. I generally use a break of support/resistance as a signal, rather than a break of a specific MA.

Tyler-

Tyler Craig said...

Clive,

Thanks for the question - I'll answer it in a blog post today.

Tyler-