Options Volatility – How To Trade Options Video 43 part 3


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It’s already trading higher. Now, we’re not going to get this one. Let’s go back to our DXD. DXD traded up over $70. Now it’s trading back down. We want to go ahead and take a look at taking that position again. I jump in and out of the same positions quite frequently, based on the Dow and the market internals.

Even in a bear market, you get rallies. What we want to do is take a look at the market internals. The market internals look like the market will re-trace here, at 359, or 358. That will hurt our DXD. We’ll wait for the extremes. 354. We want to see these extremes. If we can’t see the extremes, then we don’t trade.

For the market to come back – let me just show you these internals, here. For the market to come back from these extreme oversold levels… You can see how extreme these oversold levels are, on both. The top is the number of issues declining. We are at -2666. The volume continues to drop lower and lower. We are at a -678. The volume on the downside is 7 times more than the volume on the upside. That is extreme.

You’re always better off going with the trend, and trading the short side, in the direction of the trend. Once in a while, you can get pretty violent reactions and anti-movement trends here. Now we’re at 348. We’re going to get an extreme on the DXD. $69.51 looks like an attractive entry point.

I missed it. Now it’s starting to trade up. Let’s see if it goes back down to $69.51. I got it at $66. I’ll get ready, and go ahead and sell the position. Market internals look good. Let’s see if we can retrace it back up to $70 here. The volume continues to decline. It’s absolutely amazing. We’re back up to $72. We got in at $66, which was pretty close to an extreme price. We didn’t get that $69.50, like I wanted. That’s okay.

I want to take out 400, rather than my entire lot here. Just catch a little profit off of that. Let’s close out the rest. We’ll see how the market internals look. I always like to close out the majority of my positions for at least some profit.

It doesn’t look good. It looks like we might get a counter-rally here. We’re down to 361. 354. I’m out. We’ll load up our guns, and take it to another extreme.

When you’re dealing with $5 commissions, you can trade pretty actively. Let’s see if we get another entry point. If we trade down to $69.50 again, we may be a very attractive entry point again. The internals look pretty good on the upside. Let’s see what the DDM is doing.

Let’s see where we are for the day. We’re up $254 for the day so far. It’s not too shabby, but the market’s just not moving that much. We’ve had a couple of big spikes. When you’re dealing with pennies on your trades… We’re getting a nice spike up. The market is coming back pretty strong. That’s why I got out of that DXD position. We might have an opportunity to get back into that, pretty soon.

There’s my DXD. I’m watching it on the other screen. We’re also looking at these market internals. Market internals continue to look bad. Let’s go back over here to DXD. I don’t think this counter-rally is going to last very long.

Let’s see if we can’t get back in here, on an extreme bar. $69.33. That’s an extreme. I have to wait for the market internals to tell me when exactly I should be getting in. We’re going to see this counter-rally continue.

It’s trading higher again. I just don’t like sitting through these downdrafts. I could have gotten in at $69.50, but you can see, it traded all the way down to $69.30. Now it’s trading back up again. We’re at 342 on the Dow.

I have to keep an eye on that. We’re still rallying. We’re coming back. We’re at 338. That should hit it. That should bring it back down. It looks like people are buying the DXD, because they think the market is heading lower. I don’t know why they would think that. We’re only down 345 points.

It looks like we’re going lower. That’s for sure. I may have missed my entry point on this one. We’ll give it another second.

Let’s take a quick check-up on the Dow Industrials, and see how they look on an intra-day basis, before we take another trade. We’ll take a longer-term view. We are hitting right up against this support level that I had identified earlier. That is a support level that goes back quite a way, back to here.

That was back in 06. July 24, 2006. July 17, actually. We are hitting right up against there, and there is the potential for the market to turn around. That’s why it’s always probably a good idea to pay attention to the counter-trends. If you get a good counter-trend here, you can hit the bottom, and you might be able to make some money.

This could be a potential bottom, where the market turns around here. I wouldn’t discount it, at this point. I may end up trading this extreme here, on the DDM. If this holds, we could get a nice rally going here.

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