Down but still chugging

What we had believed were easy layups last Wednesday (previous call), has turned out to be quite the difficult set of trades. We had been looking for a hint of optimistic news coming out of the Humphrey Hawkins and got very little market agreement. By optimistic, what we really anticipated was some type of hint towards further liquidity draw downs or some other signal that the historically low targets were going to finally start to climb back to normalcy.

Our gold stop was too tight. Though the play was exactly right, we didn't allow enough room to wiggle towards the downside and it cost us a winning trade. Looking forward, we would like to try a two week gold trade with a bit more slag in the line. We initiated longs at 1116.50 in GCJ10. Our target is 1145-1155. Our downside trigger is 1095.50 and our allotted time is 10 trading days.

We have noted the VIX (Yahoo!) here before and we like to use it as a gauge for some of the option plays we execute. It's currently trending lower and if the general market continues to grind higher, we anticipate multi-month lows. Our play to capture this as well as a perceived top on the SPX is to sell ATM calls. The trade we like is the SPX J1105 call at $16. If we trade higher, you have 16 ticks to hedge your shorts, but if it is the grind higher (a tick or two a day) the locals will extract a pound of flesh on the ATM Volatility (currently about 18%). Our thought is that there is a minimum of 10-15 ticks to the downside and wouldn't be surprised to see a 1095 print by Monday at noon. This is strictly a 1-4 day trade and we'll be looking to cover if we start trading south of 1090.{This has been a painful trade and even though I agree with it in principle, we're going to need to cover all of it. Though not the optimum way of doing it, I bot all my short futures in at 1120.75 locking in a loss and I'll have to stay alert for a huge sell off. I'll probably buy some puts to lock away downside risk. Not our best trade}

Our U/U trade has been beaten up. Our longs were initiated at 27.50 and over the last two days it has traded as low as 24. We have added to this position and continue to look for a push back towards to low 30s. Our averaged price is now around 26.

Finally, Mr. Practical Thinker has put his devised a spectacular, end-of-the-world, insurance policy (PT: you should expound on this strategy and why it is so dynamic)

Buy FFJ10: 9984.5

Sell EDH10: 9973.75

We would recommend the normal ratio of 6:-10 which is dollar flat.

Hopefully we get the moves we've been waiting for. Enjoy the weekend. 

~LH