Archive for options

First finance post in a while

Posted in Misc. with tags , , , , , on April 19, 2012 by Jack Of all Trades

This is just an opinion that I have and should only be taken with a grain of salt.  I no longer trade futures but did just fine when I was prop trading (analyze that anyway you want).  One of my favorite future markets to trade was the SP 500 and recently I have taken a notice to the possibility of a head and shoulders on the daily chart.   You might not think that is significant because that is such a common trading term, however, used with Stochastics it can be a very good reversal indicator.

When viewing this chart, the first thing I notice is the three new highs (see head) while the stochastics are not doing the same, they are actually doing the opposite.  This can indicate a reversal in the market.  The diagonal blue line is support, however, if we test the highs, make new highs with no follow through, I am buying way out of the money puts in this market.  The entire move back to the top would be part of a divergence which typically means look out below.  There are multiple ways to hedge this position with options and trade around my thought process- I just don’t want to go into details on my blog.  I would love some responses to this and am open to any and all comments.  Again, this is just my thought process and am no way responsible for others results.