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By Alan Farley
12:12 p.m. EDT
Bearish Hedge on the Dow
By Timothy Collins
10:14 a.m. EDT We are buying the ProShares Ultrashort Dow Jones ( DDM) May 28 puts for 50 cents and simultaneously selling the Dow Jones Diamonds ( DIA) May 83 puts for 67 cents. This is in a 1.5-to-1 ratio of DDM to DIA for a total net cost of 8 cents. This is a bearish trade. It will profit from a sideways or down move but would lose the 8 cents on a move higher in the Dow. This is a fast-moving market, so prices will change. Profits will accelerate on a downward move in the Dow. Long DDM May 28 puts, short DIA May 83 puts
Breaking the Channel Lines
By Helene Meisler
8:47 a.m. EDT After I wrote my column last night, I reread John Magee's chapter on channel lines and discovered something interesting. The amount (of points) that the chart fails to reach the top of the channel by (in the Nasdaq's case it's about 40 points) is usually the amount by which it falls from the lower trendline before having its first snapback rally. In this case we broke at 1,700 and closed last night at 1,664, so at 1,660 we'd be pretty close to that 40-point "number." That is in keeping with my thought that it's expiration week and we should have "one different" day. As I said in my column, it's usually a down day, but this has been a down week, so why not an up day? I'd look for a respite from the downside. No positions.
By Ken Wolff
The PowerShares QQQ ( QQQQ) is trading flat after a drop caused by jobless claims coming in higher than expected (637,000 vs. 610,000 expected) and PPI up (0.3% vs. 0.2% expected). The numbers should help us on our way to QQQQ at $32, which is my rough target for this pullback. Yesterday I expected a small pop before the sellers came in, but we went south and never looked back. We did not see the end-of-day short-covering either. I am going to look for early selling and we cannot game the buying until we actually see it. It's going to be choppy and mixed and difficult to trade. No positions.
A Look at Expiration
By Scott Rothbort
8:13 a.m. EDT Looking at May expiration for the S&P 500 (SPX), which takes place tomorrow at the open, it appears that the 900 strike has an overwhelming amount of open interest -- about 200,000 contracts, relative to the 875 strike -- about 70,000 contracts. Thus, all things being equal, we should drift a bit higher today. Of course that could be negated by economic news or more anti-capitalist behavior out of Washington as we had yesterday. If you are purely looking at the S&P Depositary Receipts ( SPY), then the 85 strike has the largest open interest, with nearly 280,000 contracts vs. about 210,000 for the 90 strike. However, the SPX is 10 times the SPY, so the dollar delta bet on the SPX is far greater at 900/90 than the dollar delta bet at 850/85. No positions. For free trial to Real Money, where you can get updated trading and investment ideas throughout the course of the day, please click on the tile below.