The Wizetrade Options Blog

As the market pulls back today after a very strong run up to resistance, I'm looking at the following points for immediate support. When I say immediate support, I'm expecting a "pause" from the market at these levels before continuing or bouncing.

$DJI (Dow) - $10,100

$SPX (S&P 500) - $1,080

Angie C.

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I often use the Open Interest of the Indices or their ETF's to gauge market sentiment. While Open Interest does not depict specific market direction, when I keep in mind that large institutional traders will often use Options as a hedge or insurance, I like to use high levels of Open Interest to gauge sentiments of support (Puts) and resistance (Calls).

• Interestingly enough, there is the most open interest on the S&P 500 ($SPX) at the $1,050 strike for both calls and puts for November expiration.
• The SPY, ETF for S&P 500, shows the heaviest amount of Put Open Interest at $95, $100 and $105.
  • The $95 & $100 levels used to be support levels as the market was climbing. This makes sense since we often see these levels around whole numbers ending in "5" and "0." The reason the open interests haven't come down is because as with most insurance, when the eminent danger is no longer looming or the coverage period has elapsed, you don't get a refund- you have given up the premium. But that was the intent. To get to expiration and hopefully lose the premium because there was no disaster to cash in on. So we can use the more recent support level of $105. 
• Calls are showing the highest open interest levels at $110 strike. This is the logical level of resistance since this is the last level we've pulled back from.

So what does all of this help me to determine? In combination with the trends on the Wizemen and the higher highs developing on the smaller trend lights, I am interpreting that there is bullishness in the current market.

Could that be why the S&P 500 is up 20 points and the Dow is up close to 200 points?

Happy Trading!

Angie C.

Follow me on twitter: www.twitter.com/ac_trader

No matter how good we are at analyzing this market, it can always throw us a curveball. It's important to remember to take what the charts give us, match our trades to our risk tolerance and not get ahead of this market, no matter how tempting!

• Take what the charts give you!
• Stick to your trade plan!
• Match your trades to your risk tolerance!

Happy Trading!

Angie C

Follow me on Twitter: www.twitter.com/ac_trader

Remember that trading is a continous journey without end.  We never understand that market.  We continue to findout where it is now.

When trading you can only deal with right now.  You must be able to trade without yesterday's emotions causing problems today.

Successful trading is built on the foundation of a solid plan. While many traders feel that trade planning is a complicated process, it's actually quite simple. A trade plan is a few simple components built on understanding your personal trade psychology.

• What are your goals?
  • Start with the big picture- what are you ultimately trying to achieve by trading?
  • Break down the big picture with details of what it will take to accomplish your overall goals- how much money do you need to get there?
  • Make the details specific- how much do you need each year/month/day to accomplish this?
  • Are your goals realistic? This question will help you determine if you need to adjust your goals, time frame for trading, or how long it will take to accomplish your goals?
• What style(s) of trade will you employ to accomplish your goals?
  • Based on your goal details you can identify what trade style(s) will help you accomplish your goals.
  • Take into consideration your risk tolerance, time dedication & psychology to narrow down your trade style(s) decision.
  • What will you look for in the stock charts; how will you select your option(s)?
  • What risk will you take on each trade; what goal is the trade looking for?
  • Will you journal your performance: entries, exits, when you move the stop loss to lock in profit?

Remember that success will be manifested through consistency. When you can repeat your successes and avoid your mistakes, you will find better success. Your trade plan will help you do this. For an outline to a good trade plan, download the Trade Plan Outline in the Downloads section of the Wizetrade Community on www.wizetrade.com in the Options section.

Angie C.