I am unloading the May QQQQ puts (expiry Friday) at $2.85; I am still long the June 125s and September 120 SPY puts. I am also buying some QQQQs for a trade.

The Markets is a bit oversold, these are up nicely, and I don’t wish to be a pig.

Given that the VIX calls are trading at a discount to how much they are in the money, I am compelled to hold onto them. You may wish to take the VIX options off the table, but I like having the hedge against any further dislocation.

As always, your mileage may vary.

Category: Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “QQQQ Puts”

  1. B says:

    Got the makings of an explosive push up here a few days this week. Let’s see if the bulls can do it.

  2. noname says:

    not another one of your “golden” calls eh, B? We’ve “evolved” from that, I hope? I kid, I kid…

  3. Bynocerus says:

    On the retirement side, I’m hanging on to all my short positions, as that’s a longer-time frame holding.

    But, with the fun money, there’s quite a few gaps that need fillling from last week, and if we get some churning today and tomorrow I’ll be joining Barry on the long side. Given his track record of being “early,” though, I may wait a tad longer now that I think about it.

  4. B says:

    What golden calls are those?

    My golden calls are commodities will tank, equities need to reset and will likely do so at single digit PEs or thereabouts, emerging markets are bubbles along with commodities driving them, big cap tech will lead the next bull market, America will dominate global economics for the foreseeable future, long term inflation is nonexistent and China is going to have some serious problems. The only one in that mix that has ever been adjusted is the inflation comment. So far, I haven’t been proven wrong on any of them. Come talk to me in five years.

    Rather than taking pot shots, belly up to the bar and say something original.

  5. vf says:

    pretty uninspiring relief rally today with heavy volume and a defensive sector, health, leading the S&P.. R2K and energy is leading lower, two of the leading sectors on the way up…
    upticks seem to be met with selling and i’m surprised we haven’t seen any buy programs try and goose some short covering..
    feels like more distribution into weaker hands. i’m with B and am looking for a pop but i would imagine there is more money looking to sell the rallies than to buy the dips at this point.. we will see.

  6. noname says:

    a wee bit sensitive this morning aren’t we, B man? sheesh, you’d think I insulted your mother or something — I’M KIDDING, I’M KIDDING, your mother’s a damn fine woman, I din’t mean to suggest otherwise.

  7. powayseller says:

    Barry, you’re brilliant at forecasting! I say this because I share your views. I got a laugh out of your outlier on “How Bullish is the Crowd?” If anyone gave a darn about my opinion, my circle would be next to yours.

    I see the same happening as you: the housing slowdown will slow consumer spending, which is the leader for the entire economy. Economists are focused on back end data: corporate spending and employment. It takes 6-9 months for slower consumer spending to show up in those areas. So economists see low unemployment and high capital spending, and misinterpret this as bulllish, without realizing they are lagging indicators from last year’s consumer spending run.

    I’m also concerned that corporations are not using cash for R&D, but to buy back shares. The P/E ratios are too high. All markets (stock and housing) revert to the mean, but oscillate wildly before settling.

    Can I invest money with your company, or do you suggest I just follow your recommendations? I’ve bought stocks only long, and the Puts would be new for me.

    I see the pending recession. We sold all stocks and our San Diego house, and moved to cash. (And I’m only a housewife. Isn’t this what the economists should have figured out?)

  8. anon says:

    Look at the big picture. the markets are not anywhere oversold. the weekly charts show the internal indicators just turning over and a long way from oversold. your true bearish stance should see this, or have you turned into just another hedge fund guy chasing volatility. in which case, you will go down in the heap of traders who ought to have known better. stay the course.

  9. Bynocerus says:

    Oversold is such a subjective word in the trading community. For example, from looking at the stochastics, the market has been oversold since last week. But, a look at the A/D Line says we’re not oversold till Friday or Monday.

    What IS interesting to me is that when the markets go up quickly, then pause, many commentators suggest the market is simply pausing for a move higher. But when the markets go down quickly, then pause, markets are simply churning before… ANOTHER MOVE HIGHER. Whatever.

    Like Barry, I think we get some kind of snap back that causes quite a bit of short covering soon. Not too many weeks in the history of the markets in which the Naz was down 4% or more in one week, and unless we crash, the buyers should make at least one last charge.

  10. Mark says:

    Byno-

    But what do you think of today’s ‘sell the rally’? If this keeps up I think this is rather ominous. Bulls reasserted themselves then lost the grip again even with the commodity complex getting smashed and the US flag waving going on with the dollar. That’s worst case scenario for the bulls I have to believe.

  11. Bynocerus says:

    On the one hand, I don’t care, because I’ve had most of my clients very defensively positioned for months, and as I’ve mentioned, I’m short in my retirement accounts, so the red bars make me money.

    On the other, I think the sell the rally mentality is actually good for the bulls. It will create a washout much more quickly. I think if we had gotten a snap back today the bears would have gotten a lot of company quickly as programs and hedgies faded the crap out of any rally. Right now, Joe Sixpack is selling his amalgumated upchuck at whatever price he can get, which should give us a short term floor somewhere in the vicinity here.

    This doesn’t mean I don’t think the Naz is gonna get dropped by 50%+ over the next few years, but in my experience, barring a crash, the bulls will do their best to create some congestion shortly and frustrate everyone by not allowing the market to go anywhere meaningful for a while longer. I could be wrong, and it wouldn’t be the first time today, but rarely have I put on the amount of shorts I’ve got loaded up without having some indegestion from watching the bulls make a valiant effort to cost me money.

  12. Kevin says:

    “For example, from looking at the stochastics, the market has been oversold since last week. But, a look at the A/D Line says we’re not oversold till Friday or Monday.”

    Would someone point me to somewhere I could learn how to “look at the stochastics” myself and how to understand “the advance/decline line”?

    Also, are there objective measurements of “over-sold”?

    B, thank you for the quite clearly spelled out calls. I would agree with you on China. All the Far East economies have developed using excess effective demand provided externally (by primarily US consumers). When that external condition changes, the Far East economies will need to shift to generate their own demand. Japan has been trying to do this since the mid-80s and has not succeeded. (The current recovery is still driven by exports to the US, only it does not show up that way in the trade figures because the manufacturing is done in China and shows up as Chinese exports.)
    I think they are deep institutional and cultural forces that have aided the Far East economies enormously in utilizing US consumer demand, but these same forces will work against those econonies when the consumer of last resort wears out. This difficulty in shift to growth without the benefit of massive trade surpluses is what I think is not recognized and therefore not priced in.

  13. GRL says:

    Speaking of commodities, has everyone had a chance to take a look at what Stephen Roach has to say this morning?

    http://www.morganstanley.com/GEFdata/digests/20060515-mon.html

  14. cris says:

    I just dont think it is prudent to be long the QQQQ or the DIA before the PPI and CPI data …. I am holding my puts.

    Do you think the PPI and cpi will show inflation being contained ?

    My thinking is that if the data shows infaltion the market will sell off on the rate hike for june … but after that we get a bounce.

  15. cris says:

    I just dont think it is prudent to be long the QQQQ or the DIA before the PPI and CPI data …. I am holding my puts.

    Do you think the PPI and cpi will show inflation being contained ?

    My thinking is that if the data shows inflation the market will sell off on the rate hike for june … but after that we get a bounce.

  16. Bynocerus says:

    Kevin,

    Unfortuantely, there is no holy grail (read objective indicator) that says we are oversold or overbought at a given point. And for better or worse, RSI, money flow, stochastics, A/D, etc can all be used as indicators, and can be right or wrong independently of each other.

    Investopedia is surprisingly good at fleshing out terms such as overbought and oversold, so I’d send you there for starters. And, I pull my indicators up on Bigcharts.com using interactive charting.

  17. B says:

    As Byno said, oversold and overbought depends. Frankly, it depends on your time frame. Since most stock market liquidity is very short term trading, I tend to look at the short term for clipping off trades. Short term, we are very oversold. There were very high improbabilities today was going to be an up day. It was rather preordained because the intensity to the downside needs to abate. Call it a consolidation or call it a rest or call it what you will. You don’t go from down 1-2% on all indices on massive down volume for two or three days without a digestion. Maybe the digestion will result in another down leg or a short term rally. I tend to think we had the low at 2pm today. That is when I expected the bulls to step in and they did. The placement of options data this week tends to support a rally into options expiration.

    The good news is this was a low volume down day. Sans the commodities and a few other blow offs, the markets really are sort of treading water today. Most likely Tuesday is a possible day to stop the bleading or even have a positive day. Ain’t a coincidence it is called Turnaround Tuesday. The volume we’ve seen on the downside is the worst we’ve seen in a year. That is good and bad. Good, because we are as oversold as we’ve been anytime in the last year on a volume basis but bad because it is at all time highs. So, that likely portends a rally that is short lived.

    I am more and more confident commodities have peaked. Sans gold that is. Only time will tell. Gold simply hit 720 which was a very strong Fib number from 1980ish. We’ll most likely see greedy bastards take it past its 1980ish high before they lose their shorts. No pun intended.

    I guess Roach’s recent capitualation was short lived. His partner, Andy Xie, has been ahead of him on this call for some time as it pertains to China.

  18. Bynocerus says:

    Echoing B (and man have I had a little time on my hands today), I think you can make a short term play here – I bought the qqqqs this afternoon around 3:15. There are two gaps that need filling on the NDX @ 1650 and 1700, but there is also a gap that needs filling at 1600. All those babies will get theirs, it’s just a matter of when – I’m inclined to think not just yet.

    Unfortunately, as I’ve mentioned before, there’s a gap on the COMP around 1175, and some day that gap is gonna get filled.

  19. Bynocerus says:

    As for not just yet, I meant 1600

  20. B says:

    Er…it was a low volume day on the Nas until 2pm.

  21. Bynocerus says:

    and your point is…?

  22. Jack says:

    I briefly considered covering my QQQQ short this afternoon based on what seems like a short-term oversold condition, but as I think this is just the beginning of a longer-term vacillating downtrend that will probably last through October, I continue to hold them.

  23. Larry Nusbaum, Scottsdale says:

    1. There remains a world wide shortage of silver as demand is rising in part from the new silver ETFs.
    2. Central Banks around the world are buying gold and will continue to buy.
    3. What real estate bubble?

  24. Larry Nusbaum, Scottsdale says:

    NDX in it’s second day below the 200 DMA…..

  25. ticker_tape_watcher says:

    Looks like you’re making the right call. Article in EETimes says -

    “Chip inventories continue to surge and point towards a possible and dreaded “correction” in the semiconductor industry for the second half of 2006, warned an analyst …”

    http://www.eet.com/news/latest/showArticle.jhtml?articleID=187202803

  26. B says:

    After the rout overseas last night, I would consider this a very dangerous trade for nonprofessionals or those not familiar with intraday investing. If the bulls don’t hold the market at yesterday’s low, they might be in alot of trouble.

  27. Mark says:

    B-

    Looks like the hot money is exiting the emerging market play and leaving all the retail investors holding the bag. But other overseas markets being hammered as well, just as you say. I thought it rather um CURIOUS that the defensive health care sector got some love yesterday.

  28. Bynocerus says:

    That selloff in the Nikkei truly was ugly, but the Asian markets have been selling off for weeks, and it’s my view that problems here only exacerbate problems there.

    I wouldn’t be taking this very quick long except for one reason: I have a very hard time believing the big institutions aren’t going to pin the indices higher than here going into Friday. There’s a lot of suddenly out of the money options floating around, and it won’t take too much effort to get those babies back to at least break even. I’m looking for the Nasdaq to shake out some fresh bears here before the hammer comes.

  29. B says:

    Uh huh, Mark. Some of these overseas indices are in lands where people likely believe equities are now the land of milk and honey after likely having no exposure to them in the past. Can you say 1929 scenarios in India, Russia, Brazil, Dubai, Kuwait, etc. Russia is up a mild 300% in a year. Not that it has to end that way. Their fuel is commodities, commodities and more commodities. That is, sans India. Well, ok, commodities there too. People commodities. I actually like the Indian theme long term. But, after a 50% correction or more. :)

    Byno, I agree with you on the options pinning. That is one reason I feel somewhat comfortable that this week will provide some price support . I see another 2.5% up from here on the Q’s but not nearly as much on the Spyders from my analysis. That doesn’t take into account the gaps. Pretty hard to imagine that happening at this point but………never say never.

    A good open so far……..although muted.