Friday, September 6, 2013

Gold Redux

Gold Redux

I like to revisit past write ups from time to time. TOday, I got a question again about Gold. So, instead of rewriting it up I will simply point you to the last two write ups which still apply today:
1) late in May: (hopefully you listened and stayed away from long trades in Gold)
2) Late in July:
Notice here on the bottom chart how the crayon nailed the pattern that followed exactly.

The mother of all earnings lotto ticket - $LULU

The mother of all earnings lotto ticket - $LULU Posted on Sept. 3, 2013, 6:22 p.m.

Find it here:
LuluLemon reports earnings before the market opens on Sep 12th. Here is statement that always seem to spur heated debates: investing going into a company's earnings report is gambling! The argument for this is that traders cannot predict how the markets will react to earnings reports regardless if the quarter is a miss, meet, or beat with raised or lowered guidance.
This doesn't mean that traders should stay completely shut out of earnings events. Thanks to the option chains, traders can still participate in the earnings with lotto style trades. Those are trades with minimal costs, well defined risks, and a decent return IF they hit.
A good candidate for such lotto earnings trades is crowd favorite LuluLemon. It is still too early to pick a stance on the stock but traders can start working on the set up. The one year chart below clearly shows why lotto trades in LULU have a good chance of working well for those who guess the direction correctly. Meanwhile, here are a few points of contention to consider before trading earnings lotto style:
  1. Here is a good make up of a lotto trade:
    • Stock with violent reactions to earnings releases
    • Preferable a stock with weekly options (tho not a requisite)
    • Stock that has decent options volume
    • Defined risk usually nothing more than the price of the option position
  2. The direction decision: this is the coin flip moment! Traders have one chance at calling it right.
    1. One can go with the flow and take the same position as the market expectations
    2. Once can go against the grain and take a contrarian position to market expectations
    3. One can also pull a Constanza: make the decision and then take the opposite direction (it recently worked for me on CRM earnings;-)
  3. The magnitude of the move: Equally as important as guessing the direction of the move is guessing its magnitude. It pays nothing to correctly guess that Lulu will fall on earnings but choose a trade that is so far out of the money that it won't participate in any meaningful options premium appreciation even after the move.
  4. Recap: to hit the earnings lotto trade with a proven earnings mover, traders need to guess up or down (that's a 50/50 chance). Although traders need to also choose a good level, the chances for success are still darn close to 50%.
A skeptic might ask then why would investors not want to buy a real lotto ticket instead and have a chance at millions? Simple: a 50%ish chance of loss (here) is way better than 99.99999% chance of loss with a 'real' lotto ticket.

9/6/2013 Afternoon Tea – Public

9/6/2013 Afternoon Tea – Public v. $SPX $NDX $RUT $AAPL $GOOG Posted on Sept. 6, 2013, 4:37 p.m.

Find it here:
Recap: The word of the day is Whipsaw! First we open up from yesterday. Then we quickly fall off a serious cliff on Russia/Syria/US chatter. Then within minutes we recover for most of the day only to lose steam going into the close. The only part that didn’t surprise me today was the fade into the close. I had said that traders will want to book profits before the weekend especially that we’d had three up days in a row and were working on a fourth one. Although we closed flattish, this was definitely a win for the bears! An important note is that the market seemed to have ignored the interest rates during market hours. I suspect that this won’t last long.
Next Open: With a light economic early part of the week, I anticipate that Monday’s open will be heavily influenced by the Asian and European overnight sessions. It would be interesting to see how they will interpret our Friday chain of events. As for the Syria issue, I want to assume that we will have the proverbial blue elephant in the room until Obama gets his way. NOTHING IS PRICED IN! If Fed tapers tomorrow or if Obama strikes Syria we will fall precipitously. Conversely, if Bernanke flat out says no taper on his watch or if Obama said no strikes then we rip to the moon… NOTHING IS PRICED IN!
Trades: Nice day for the folio.
  • New positions: You saw the two new positions with the write up that preceded them. Nice going.
  • AAPL: Headline stock so sidelined for now. Next week it has important events which in my opinion will be sold.
  • GOOG: Those of you who sold the credit call spread this week you are breathing a little better today. Although I bet that you lost your breath a few times on Google strength ;-)
  • NFLX: Nice position price action today. The stock had terrible market profile and it was literally saved by the bell. Had it lost the 291 level it had the potential of falling into an abyss. You also saw my mid-day write up.
  • NDX: Good performance in the trade at 54% of max profit. At one point price showed a .05 to close but my order didn’t trigger.
  • RUT: Good performance in the trade at 59% of max profit.
  • PCLN: I am personally still short it as it continues to demonstrate that it can’t hold its green. Although I most definitely have protection and my finger on the trigger.
  • BIDU: had an amazing turnaround today. I still can’t touch it here. It has the potential of a bullish pattern forming (yes, even at this altitude) BUT I don’t make decisions based on technicals but rather use them to verify my thesis.
  • IMP NOTE: Don’t take trades I post in the blog area, unless you know exactly what you are doing. If you are not sure what to do, message me.

See you all soon.
Nicolas Chahine,
Create Income with Option Spreads / Maximum Profit Spreads
to Create Income with Credit Spreads on

Monsanto By Request from Member

$MON - By Request Posted on Sept. 6, 2013, 7 p.m.

Find it here:

This is a stock that I used trade via credit spreads but last year I dropped it off my watchlist for many reasons. So I will leave the Fundamental argument up to you and you can layer them onto what come next.
Since I don't track Monsanto I will evaluate it's price action with my trusted Crayon Analysis (keeping it simple gives me clarity).
  • Good news: It recently looked like it was headed to break out of a descending channel.
  • Bad news: today it hit the roof of the channel and failed in a big way. Look at the ugly last red candle from today.
  • Conclusion: If someone held a gun to my head and made me choose then I would say it can see 95 before 102 going into earnings.
*** Bad price action today and on 9/3:

*** Bad candle today:

Friday, May 31, 2013

$VIX Perspective

Here is some perspective on the VIX. Below are 2 charts with my CRAYON based opinion. Often enough, the CRAYON is the simplest way of looking at trends. You have my permission to make fun of my drawing skills ;-)
12 months chart: VIX has tried to break out and failed 5 times. BUT, they also tried to break it down and it bounced solidly off the 12level. Just like a high jumper, give it enough tries he/she will be able to clear the hurdle. In this case, the VIX with a solid footing may be able to break out (bearish the market) from this descending trend. See the lower chart for some more perspective of how high can it go...
5year Chart: So how high can it go? VERY HIGH ;-) Furthermore, I see the same footing level and lower highs. To me, this is the VIX tightening and could be winding for a big move. At X, the tighter the range could indicate a potential big move. Though the direction is unknown, the likelihood is UP (bearish) since the 5 year footing has prevailed.

Thursday, February 21, 2013

Not A Rotten $AAPL - My Simple Take

Lately, it seems like every expert is announcing the demise of Apple. Consensus is that it's doomed! So What's with Apple? is it a rotten fruit? Not by a long shot. This is a much beloved company for far too long to get a fair evaluation in the typical sense.
The 'evaluators' are most often people who have financially and emotionally invested in it for years. So, In order to properly evaluate Apple, I believe we first need to:

* Eliminate the emotions
* Erase the name
* Ignore the highs and the lows, including the high 1,111 and low 200 price targets
* Forget who bought it and who sold it and how many entities are left owning it too.
Only then that we can look at it from a fresh perspective like a company we've never seen before. So, if you tell me: 'psst I have an interesting company for you. Here are its facts:

* It has an excellent management pedigree
* It has highly regarded products that have a massive cult following
* It sells out of every widget it introduces in minutes and at a premium
* It controls the largest global music marketplace
* It has excellent profit margins that most companies would envy. (Here's an important note about a popular point of contention: often mavens point out the mounting "margin pressure" in Apple. Well, since monopolies are illegal 'margin pressure' is a fact of life for EVERY company!)
* Oh and by the way, this company has an insane cash position that would allow it to buy its way to the top of any industry it chooses

After hearing you tell me the aforementioned facts all I would ask you then: "how much of a premium would I have to pay for this company? What? Priced only under 10times? My answer is an emphatic: "deal me in; it's clear to me that there is more upside potential than downside risk from here."


Wednesday, January 23, 2013

$AAPL $300? No Mr. & Mrs Maven

Can't put this in a 140 character post on twitter so here it is:
My simplified AAPL overview:

* MY BEEF: I keep hearing mavens saying 'if it weren't apple then no one would be surprised it's down that much.' Even one genius called it a broken company, etc.

* MY STATEMENT:  My answer to the aforementioned mavens: "but it IS Apple Mr. or Mrs. maven. You can't just make believe it's not. It's still that same company that sells EVERY widget it makes and at a premium! It still has more cash that most countries. AND it still has most of the modern world as devout fans. AND it still owns the way we ALL buy music, etc."

* MY TAKE: Apple dooms-dayers now littering the media with forecast of 300/share for apple. Keep it simple: take a 2 year trend and add my trusty YELLOW MARKER trend line, you can draw a line (best fit to 2yrs ago performance-not the crazy run up it had) that gets you to about where it's trading after hours. So what? let's use the mavens words and say: 'take out the name Apple from this chart and you get just the normal medium growth company plugging along just fine!' This means that the $300 price forecasts for Apple are just as crazy as the infamous 1,111 call!

Disclosure: I have a small long Feb position (Credit puts spread) that is still way out-of-the money even at 480 AND I am long weekly puts that I will cash in tomorrow. So I am not biased based on any hurt long position.

Tuesday, January 22, 2013

Rare $ISRG earnings trade

 If you already follow me then you know that I like to sell option spreads. You also already know that I don't like to take positions into earnings because I can't foretell HOW the markets will react to the reports. All the homework in the world can't give me ANY insight on that reaction; I can have certainty in say the size of the move but as for the direction it's no better than a coin toss.

Here comes the shocker: Just before today's close, I tweeted that I initiated a long $ISRG position going into earnings.

Why break my rule? I felt that the recent drop in ISRG gave us a sneak peak at its LOW levels. On my chart, I marked those areas with the horizontal lines and hand-drawn rectangle (sorry too much coffee and hand jittery). I felt like the 'world had ended' for ISRG with a few really doomy headlines and dropped and popped around the hashed zone for a few days. So, if the world ended AND YET it held the 480's then it must be a really strong support going forward.

THE TRADE: Long ISRG via Credit put spread.

NOW WHAT? 1) if ISRG opens around 560ish (as I write this article it's at 566ish) then I will look to add an upper leg and turn this credit put spread into an Iron Condor. I will carefully look for a good level to take a credit call spread. or 2) if the premiums disappear on the CPS I already sold today then I may close it and cash in the ISRG play. or 3) same as #2 (close the CPS if cheap enough) and start looking for a cap on it. Whatever I do, I will make sure not to ruin a perfectly good trade.

NOTES: looking at the chart I see an earnings pop/gap that fizzled and proved to be a top (oval). This pop will guide me in finding upper levels (should I decide to cap it). The red x on the chart shows where it's trading after hours which coincides with recent resistance. Usually, when I try to cap the run of a fast runner I go much higher than price; likely about 600+ for ISRG as it's proven over and again that this sucker can run circles around Usain Bolt!