Here’s the replay from Andy’s Market Preview this morning… enjoy!
Archive for the ‘AAPLTrader Blog’ Category
Here’s the replay from this morning’s very first Andy Fetter Market Preview… enjoy!
Buying stock, trading options and trading spreads all have one think in common…
… all of these positions have what’s called delta.
Many people already know that you can use delta to manage your trades, your risk and your profit potential potential.
But did you know Delta can also be used as a timing mechanism? Something that triggers you to take action, place a trade or make an adjustment?
Check out this video I just filmed that explains
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Index arbitrage program trading activity can occur under certain market conditions. For example, if stocks are temporarily cheaper than futures, an arbitrageur will buy stocks and sell futures to capture a profit on the difference, or spread, between the two prices. By taking advantage of momentary disparities between markets, arbitrageurs perform the economic function of making those markets trade more efficiently.
Programed trades can produce sudden and possibly sharp market movements. Most likely, you have seen these types of moves on your charts. Knowing the likelihood of programed trading, this information can help you determine whether to initiate long or short positions in stocks, index futures, ETFs, and options.
How to determine when Index arbitrage program trading might occur
Buy programs occur when the futures market is over-valued relative to the stock market and consists of the index futures being sold and the stocks in the index being bought. Sell programs, the opposite case, occur when the futures market is under-valued relative to the stock market and consists of the index futures being bought and the stocks in the index being sold. Over-valued and under-valued conditions arise because trading in the futures and equities markets occurs independently. The key to determining these over or under-valued conditions is the arithmetic difference between the futures and the spot index (known as the premium).
Index premium can be easily charted in thinkorswim platform. In this example I am using the S&P 500. To chart the premium simply type in “/ES-SPX” as the symbol. The chart below shows the premium value on a 15 min chart.
Now that you have a graph for the S&P 500 premium, how do you determine when program trading might occur? You may have noticed the levels on the graph marked BA, BT, ST, and SA. These represent “Buy Active”, “Buy Threshold”, “Sell Threshold”, and “Sell Active”. So where do these levels come from and what do they mean?
There is a website that gives you this information for free. It’s called “inexArb” and the link is: http://indexarb.com/index.html
Here, you can get daily Index Arbitrage Program Trading Premium Values. Here is an example from Dec. 13, 2013:
For our example, I simply used the levels shown in the table to create levels in the graph. As you can see, you can create a graph for the NASDAQ and Dow Jones. Since these numbers are updated daily, you will need to adjust your chart daily.
The Sell/Buy Active and Thresholds are a calculated probability and are shown in as graphs on the website:
In the graphs above, the sell/buy active value occurs on the left/right side where the probability of a sell program approaches 100%. The sell/buy thresholds value occurs on the left/right side where the probability of a sell program is just greater than zero.
Please note that these levels are areas of “Probability of Programed Trading” and areas where programed trading might occur.
Following this information daily can be valuable to traders. The best way to use the chart is to watch the corresponding index for large buying or selling. If you are planning to use the information for trading, it is a good idea to use the “paper money” platform first.
*Check the full web page on indexArb for “Trading Guidelines”, and further information on calculation of SA, ST, FV (Fair Premium Value), BT, and BA.
Mark Handley, Ph.D. Portland, OR
References and other Resources:
- indexArb: http://indexarb.com/index.html
- Dynamic Hedge (great resource): http://dynamichedge.com/2011/11/18/how-to-identify-program-trading/
- Optioninvestor: http://www.optioninvestor.com/page/oin/education/traders/2009/07-30.18-16-03.html
- Hedge Funds Consistency Index: http://www.hedgefund-index.com/d_indexarb.asp
- HL Camp & Co,: http://www.programtrading.com/DIA/index-arbitrage-fair-value.htm
Here’s the replay from the AAPL Earnings Event today. We covered the foundation for becoming a consistent swing trader, long term and short term analysis on AAPL, PLUS – The debit vs credit spread — which one is better?
Thanks everyone for coming!
PS. Here’s the chat from the show
3:48 PM Micah: AAPL Earnings Show is starting in about 12 minutes
4:00 PM Jay: Im long with options hope it goes up
4:00 PM Micah: Here we go….
4:02 PM Martin: hello from Prague, Czech Republic
4:02 PM Micah: restarting to make sure sound is good
4:03 PM Martin: with all your publicity, you may start getting capacity issues Micah
4:03 PM Doornaert: hello from Belgium
4:03 PM Keith Mascheroni: hey from NYC
4:03 PM Randy: Hello from Australia
4:04 PM Ashi: I hear echo not sure about others
4:04 PM Andrea: Andy from Orlando, Florida
4:04 PM Ashi: Hi from San Jose
4:05 PM Keith Mascheroni: no echo here
4:05 PM Jay: no
4:05 PM Ken: yep
4:05 PM Frank: Hi from San Diego – good sound!
4:05 PM slawek: sounds good here
4:05 PM Cmgleason: No video
4:05 PM Martin: sound is fine
4:06 PM Randy: Sound is good
4:06 PM Cmgleason: Got it now
4:06 PM Jay: Apple to $550. Long call options.
4:06 PM Cmgleason: No video
4:07 PM Ashi: it’s good now for me too. I’d another browser open with aapl trader website:)
4:07 PM Randy: I’m in cash for AAPL
4:07 PM Martin: try checking your Flash installation Cmg
4:10 PM Rick: Hello from CT
4:16 PM Eric Gershon: is that dollar above the last wick of that candle or the close
4:17 PM Serguei Laham: Hi all This is Serguei From Huntington beach, CA
4:17 PM Merra: I’m Long AAPL, have Position in 520 & 560 call option
4:17 PM Eric Gershon: thx
4:18 PM alain: I don’t expect a big move today
4:19 PM Serguei Laham: I took some winnings (house money LOL) and bought a Jan 625/640 spread with a net debit of 90 cents,…. is that a real gamble or what?
4:19 PM Shelley green: better
4:19 PM don: Hope so
4:19 PM Jay: 20 point move after the close
4:20 PM alain: Unless they raise dividends /buybacks or announce china mobile…my upside target is 550 max 500 to the downside if they don’t meet upcoming guidance for next quarter
4:23 PM alain: Sergie…you are fine…you gotta remember that Apple has not traded in the past 6 yrs above the median/mean 12month target..right now is 550 so we need a blowout quarter /outlook
4:23 PM alain: 12month analysts target
4:24 PM Serguei Laham: Alain… that is why I called it a gamble with some free money
4:25 PM Serguei Laham: debit is bullish… credit is bearish bet
4:26 PM Russ: mostly bull put credit spreads
4:26 PM Holtzman: i prefer lower risk on debits, but i do credits on index
4:27 PM Ashi: for education purpose – the credit spread if goes into money – would this not be assigned ?
4:28 PM Ashi: that’s why normally, I invest in Call or Put as a single leg
4:28 PM Serguei Laham: at 75% wins your track record should be better than warren buffet in the long run
4:29 PM Curtis: I did a 300 x 315 bear call spread on NFLX today for a $10 credit; lookin good so far.
4:30 PM Serguei Laham: here we go stock going haywire
4:30 PM Micah: here we go
4:30 PM Jay: apple up
4:30 PM alain: up
4:30 PM kvd: wow
4:30 PM Nick: we’re off
4:30 PM Jay: WOOHOOOOO
4:30 PM alain: 8.26
4:31 PM kvd: dying
4:31 PM alain: not move
4:31 PM kvd: lost 10
4:31 PM alain: guidance is low
4:31 PM Jay: what the hell
4:31 PM slawek: holly
4:32 PM Nick: wow, volatile. sandbagged the guidance?
4:32 PM slawek: 491.2 Micah
4:32 PM Ashi: Apple sold 33.8 million iPhones in Q4
4:32 PM Jay: omg
4:32 PM alain: 55.5B revenue
4:32 PM Martin: Apple Q4 EPS $8.26 vs. $7.96 est.; Q4 Revs. $37.5B vs. $36.93B Est.
4:33 PM Serguei Laham: still too early to telll… this is speculation call is at 2 PM PST
4:33 PM Ashi: Apple sees Q1 rev range $55B-$58B
4:33 PM Holtzman: even the low end sandbag number is above estimates
4:34 PM Jay: that guidance isnt bad
4:34 PM Ashi: Apple sees Q1 gross margin range 36.5%-37.5%
4:34 PM Holtzman: good guidance, AAPL always gives low so if they are giving 3billion more than estimates one would think it is a good sign
4:35 PM Ashi: i think, it’s margin that is causing unrest to the mkt
4:35 PM Curtis: Good chance to pick up aapl cheap?
4:35 PM alain: well at least I got it right..between 500 – 550 ..
4:35 PM Ashi: the expectation was for the higher margin since iPhone 5S has a better margin than iPhone 5C
4:35 PM Serguei Laham: its still a toss up… all depends on call and forward looking guidance
4:36 PM Holtzman: if it opens low tomorrow, i will open a LEAP spread
4:36 PM Rick: Good chance to sell sell sell
4:36 PM alain: I think its gonna fill the gap tomorrow
4:36 PM Martin: I look forward to add at 480ish but won’t be disappointed if no chance to do that
4:36 PM Ashi: it’s not yet done. it may fill the gap today
4:37 PM alain: I would LOL if this opens exactly where it closed today tomorrow…
4:38 PM Randy: Does Heiken Ashi method you mentioned at the start work on daily time frame only or others also?
4:39 PM Curtis: MACD’s crossing now
4:39 PM Ken: what should we be looking for to get back in?
4:39 PM Randy: So do you generally use call options when trigger long on the method or sell put credit spreads on weeklies if the cycles ar 4-8 days?
4:40 PM alain: if apple hangs out around the 520..it should def fill the gap tomorrow
4:42 PM slawek: under 515 we wont fill gap to,orrow
4:43 PM Jay: i say apple fills the gap
4:44 PM Randy: Do your courses cover your method of trading in greater detail
4:44 PM Keith Mascheroni: thanks mica! always a pleasure
4:45 PM slawek: /NQ is holding intraday pivot
4:45 PM Curtis: Thanks, Micah! A good example of why you prefer not to trade earnings days!
4:46 PM Martin: the earnings call is still in progress, we may still hear some CM news and all is different
4:48 PM slawek: Micah will have his statue in Spring Lake NJ his system made me a better trader
4:49 PM Agha: So what did the market did not like?
4:49 PM Agha: Yes Micah has made me a better trader as well
4:50 PM Holtzman: Definitely helped me, and still learning.
4:50 PM Martin: the best money ever spent on trading – that is my AAPL subscription!
4:51 PM Agha: I told you so. It hard to say what the market will not like
4:52 PM Jay: Micahs the best, thanks for the show
4:52 PM Martin: Thanks Micah and have a nice evening all!
4:52 PM Micah: all good everyone, thanks for your kind words