Fiona's Trade

Another day, another good trade. I'm very impressed with Fiona Farley from Ft. Lauderdale, Florida. She played a put on the DIA almost perfectly. She bought a put when the market hit 11,900 or so. She thought it would back off. I did too. But the next day it shot up about 300 points. You make money on a put when the stock goes down. You have the right to put the stock to someone at a certain price, the strike price.

In this case she was playing the whole Dow Jones Industrial Average, not the index, but a ETF trust that is a stock and trades under the ticker DIA. It trades at 1/100 of the Dow. So if the Dow is at 11,900, the DIA will be going for $119. She bought the $117 puts for $2.70. She got 10 contracts, or spent $2,700. Then lo and behold the Dow went up, losing value in the puts. She did not panic, like most people. She knew she had time to expiration, and with the backdrop of the Euro crisis---the Greek Tragedy---that the market would go down. It did. This was designed to be a one or two day trade, but it took a week. Tuesday (11/1) she got out at $3.30. Doesn't sound like much, but 10 contracts at 100 shares each cost $2,700 and she sold them for $3,300. That's $600 profit before commissions.
Way to go Fiona. I wonder why Molly missed this trade. Maybe because of her fear of puts. I also have had an aversion to puts, because they get you thinking negatively. I still agree. I'm trying to change my thinking, because the market usually goes down a lot faster than it goes up. Over the years, my students who played puts made more money faster than pure call trades. Live and learn.

One point: I think the market is range-bound. This means it's trading between a support level and a resistance level. I think it has fair to good support at 11,600 and weak resistance at 12,200 and solid resistance at 12,600. Anything above or below these two levels I think is an aberration. A higher or lower move might be justified but it provides some ammo for projections. Look at a chart of the past ten years and you'll see what I mean.

Next. I also hear Molly is back into some DIA calls, thinking that after the past two days that the market will go up. I hope she can post her actual numbers.

Speaking of that; I love your questions. So please comment on the blogs I wrote on "Two-Stepping."
Thanks.
NEWS COMMENT: Andre J. Bakhar said, "This is a headline driven market." It usually is.