Wang's Happy Trading

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More than a week ago, I wrote an article, “Ultrashorts: A Good Way to Profit from Volatility“.  I talked about how fast ultrashort ETFs, such as SKF and SRS, move, and in a volatile market environment, fast profits can be made from trading the options.  Today was February’s options expiration day, and, the speed at which things moved was accentuated. 

SKF opened at $201.03 from yesterday’s close of $186.  The high of the day was $213.09, and the low was $180.83.  That’s a $33 swing!  Yesterday, in our Trade Room,  I commented:

HappyTrading
February 19, 2009 12:34 PM
SKF
just scalped $3 on Feb 165 calls; in at $17, out at $20. looks like SKF could go to $200 tomorow, at this rate!

February 19, 2009 12:52 PM
SKF
intraday charts are still bullish…

February 19, 2009 12:53 PM
SKF
I wonder if they’ll drive it up to $200 and then dump it really fast…

Sure enough, SKF opened above $200 today!!  Those same Feb 165 calls traded as high as $45!!

I made a few more trades on SKF today:

I first bought the Feb 190 calls at $11.7.  On this leg up, these options went as high as $16.4.  I had a limit order to close at $16.5, and, it did not get filled.  As SKF came down, I wanted to protect my profit.  So, I sold it at $13.5, a quick +15.4% profit.  Later, SKF went higher again, so, I jumped back in and bought the 190 calls back at $15.  This time, I got my exit point just right, and sold them at $23.  It took about 30 minutes for the 2nd trade.  This time for another quick +53.3% gain! 

You might say, “Why didn’t you just stay in and you would have gotten a +100% gain!”  Well, yes, I would have.  But, the market is so volatile, I chose to play things safe.  By cashing out and going back in, I only missed $1.5 on each contract.  The % gain can be misleading as I turned one trade into two.  My total profits were higher than the % showed!

Now, here’s where things got even more interesting.  After cashing out the Feb 190 calls at $23 (this was the day high, by the way), I said in the Trade Room:

February 20, 2009 10:28 AM
SKF
is a very good “scalping tool” between the 15-minute chart and the hourly chart you can play it safe and try to profit when the momentum picks up. Don’t have to risk much. With 3 to 5 contracts, you can make $2000-$5000 when you catch it right. If you get a little greedy and miss your exit, just protect yourself so you still keep some gains. You can always go back in.

VIX
just check VIX. it is getting toppy. if market starts to bounce, I’ll look for march call plays. If SKF starts to drop fast, it would be traders’ wet dream!!

Guess what happened?  Remember I said yesterday, “I wonder if they’ll drive it up to $200 and then dump it really fast… “?  Yes, SKF started to drop, and it dropped fast!!  The key here was that VIX was getting toppy on the intraday charts.  When VIX gets toppy, the market often bounces.  If the market was going to bounce, these ultrashort ETFs cannot go higher.  Since SKF had already gone up fast, and, given today was the expiration, people dumped them fast!  It went from $213 to $180 in about 2 hours! 

I then went into Feb 200 puts and made some more profits:

This time for just a quick +21.2%.  I was playing it safe again as there were only 1.5 hours left until the market closed.  These options traded as low as $0.45 and as high as $18.2! 

Let’s take a look at the intraday charts for SKF and see how I made my entering and exiting decisions:
SKF 15-minute Chart

1) SKF opened high and people started locking in profits right away.  After trading flat for about 30-45 minutes, SKF broke above $200.  That was my cue to enter my first trade: bought to open Feb 190 calls at $11.7.

2) SKF fought with $205 and was not able to break above and started coming down.  When it penetrated below the 15 MA (the red line), I opted to close the trade and protect the gains: sold to close Feb 190 calls at $13.5.

3) In another 30 minutes, SKF broke above $205, so I entered the trade again: bought to open Feb 190 calls at $15.

4) SKF ran up fast.  By the time that it got to above $208, I was pretty sure that it will get above $210.  I estimated $214, given that $215 may be another resistance.  I chose to exit the 190 calls at $23, just to be safe.  It turned out to be the high of the day: sold to close Feb 190 calls at $23!!

Now, when SKF came down, it came down fast.  It was really hard to catch the trade.  When I first looked at the Feb 200 puts, they were trading at $2!!  I did not want to buy at the bid price because of the uncertainty. 

5) I finally got in at $9.9.  By that time, SKF had broken below $195.

6) Sold quickly at $12, although it went all the way to above $18.  It was just icing on the cake and I did not want to be greedy.

So, like I was saying before, these ultrashort ETFs are very good tools to trade the market volatility.  They move fast and you can catch good quick trades with the help of the charts and understanding some trading psychology.  Always pay attention to the overall market though.  Recently, most stocks move with the market.  These ultrashorts are especially sensitive to the market movements.

Have a “Happy” weekend!

Good night and HappyTrading! ™