Wednesday , October 16 2019
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Tag Archives: Options Magnet

Gamma Radiation, Gamma Reversals, and Gold

I grew up watching Bill Bixby playing The Incredible Hulk on TV.  Readers will be familiar with the general story – mild-mannered scientist Bruce Banner is exposed to gamma radiation, which transforms his molecular structure. The exposure causes Bruce Banner to turn into the radiation-green colored Hulk when he experiences extreme anger. Bruce Banner has a “tell” for when his anger reached the point of no return and the Hulk would appear.   His irises turn white.  When Banner’s...

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Counting Cards In The Casino

In some ways, Wall Street is like a casino.  Both have shiny lights, bells and whistles, with distractions galore and a myriad of different bets for the making.  Wall Street and Vegas both profit from volatility, liquidity, distractions, and volume. Unfortunately for you, Wall Street and Vegas have the odds in their favor, and they don’t really care if you win or lose.  The bottom line is that both Wall Street and Vegas will turn big profits as long as enough people play their games. The...

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Will History Repeat Itself in the Gold Market?

Mark Twain once said, “history doesn’t repeat itself, but it often rhymes.”  Since President Nixon removed the gold standard in the early 1970s, gold has seen several significant rallies, all of which have similar wave characteristics.  Gold rallies seem to rhyme. The first two price rallies began in 1971 and 1977, during and after the de-linking of the U.S. dollar from gold. The most recent price rally has its seeds in the dot-com bubble in the early 2000s.  The chart below shows two...

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Can Tesla Hold The Line?

Tesla bulls and Elon Musk fans everywhere are hoping that the decline in Tesla stock price will end soon.  After the stock breached the technically important $250 price level, the next key support level is in the $180 range, close to where the stock is trading now.  Tesla has emotionally attached both bullish and bearish investors. Spend ten minutes on financial Twitter and the emotions from those thinking Tesla is going to zero to those thinking the right price in the 1,000’s is easily...

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Is Corn Ready To Pop Or Drop?

Corn volatility has spiked in recent weeks, fueled by weather-related delays in planting crops in the U.S.  The record amounts of rain and resulting flooding in the U.S. Midwest, which is bullish for corn and other crops, follows bearish tariff tensions with China which had pushed the July 2019 corn futures contract to all-time lows just two weeks ago. Source: TradingView On a weekly chart, we can see that this is the sixth time that the front-month (continuous) corn futures...

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Quick Take: Volatility Ahead in the Oil Market?

A week ago, I wrote an article discussing how the options markets can provide clues to future price direction and/or volatility in the crude oil market.  In particular, we addressed the question, “how can a trader spot these option clues in advance?” This morning, we got a signal which may indicate volatility is in the cards again for crude oil. As crude oil has continued its upward advance from late December, call sellers have become increasingly off-sides with their hedging and...

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Bloomberg, Greeks and the Crude Oil Market

In November 2018, Bloomberg published an article entitled Two Words That Sent The Oil Market Plunging: Negative Gamma.  The article opens with this paragraph: As oil suffered its biggest one-day slump in three years, it wasn’t OPEC or President Donald Trump that was shaking the market. Instead, trading desks were abuzz with chatter of “negative gamma.” The article then continues by saying that this “obscure concept begins on the options desks of Wall Street” and includes an explanation...

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Will The Pound Get Pounded?

British pound futures have been declining against the US dollar since November 2007. Over that period the pound has fallen from a high of over $2.10 US dollars per pound to near $1.32 dollars per pound today.  The Brexit vote in late spring of 2016 pushed the value of the pound below, what was then, the psychologically important $1.35 level to new lows.  Nevertheless, in the context of the vote and its broad implications, the move lower since Brexit has not been as significant as some...

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Negative Gamma and the Demise of Optionsellers.com

Brett Freeze, one of my financial market mentors, has several rules that summarize his core trading beliefs.  His first rule is “never, ever be short gamma.” More simply, the rule could read “never sell uncovered options.”  Anyone who has received a margin call on their uncovered option positions understands intimately why this is a prudent rule.  Options are a leveraged bet on an underlying security, so when price moves against the option, the financial losses and margin calls can happen...

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How To Use Op-Ex Price Magnets

All Quiet on the Western Front is a 1929 novel which describes German soldiers’ extreme physical and mental stress during World War I, and subsequent detachment from civilian life felt by many soldiers upon returning home.  This novel was eventually made into a major motion picture. The phrase “all quiet on the Western Front” has become a colloquial expression meaning stagnation, or lack of meaningful change, in any context. Many financial markets ended 2018 with considerable volatility. ...

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