We got enough movement today to get some fills. We got a chunk of members filled in both the RUT and OEX spreads, but nobody was able to get into the Google spread. For tomorrow, let's keep the orders the same for those members not filled and then try to get everyone into the Google spread. If we get another dose of volatility in the morning, that just might do the trick.

NEW TRADE ALERT (3)

Please Note: These are Day Orders and Limit Orders. These alerts only apply to those members not filled on Monday.

RUSSELL 2000 INDEX (RUT)

OPENING 500-490 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 500 strike price

Buy 15 December Puts at 490 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $505.00.

S&P 100 INDEX (OEX)

OPENING 465-455 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 465 strike price

Buy 15 December Puts at 455 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $467.50.

Google Inc. (GOOG)

OPENING 530-520 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 530 strike price

Buy 15 December Puts at 520 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $532.50.

So much for a lackadaisical half-day of holiday trading! Talk about an action packed one-half day of trading. With fear stoked after the problems in Dubai, the trading opened drastically lower in Europe and then carried through to the U.S. Market on Friday morning.

The chart below is based on five-minute candles for the DIA. It shows what we were seeing when the pre-market futures started trading. This is why we decided to cancel the trade alerts for the session. Although we saw futures down sharply on Thursday night, we weren't sure this would carry over to Friday until we saw this developing in the morning. It was quite a change when we compare where the ETF closed on Wednesday to where it opened on Friday. While the volume was fairly low last week in general, the opening volume was pretty drastic.

Not only did equities take a beating, but commodities also got sliced and diced. From gold to oil, money was running for safety Friday morning. Gold shed $10.60 an ounce on Friday to finish the session at $1,178 a troy ounce. At the same time, oil slid $1.70 a barrel to settle at $76.26 a barrel on the New York Mercantile Exchange.

While the money was flowing out of stocks and commodities, it was running for cover to the greenback and into the Treasurys. Of course, this was no surprise as investors gave up risk for security as news was still unfolding over the problems in Dubai.

Perhaps the encouraging part about Friday's session was that stocks were able to re-gain some of their losses after the initial drop. However, there are still plenty of questions that have to be answered concerning the $60 billion of debt that the investment company is struggling to pay. Many are pointing out that the real liabilities have more to do with the European creditors rather than U.S. based ones. Then there are the concerns about whether this is containable or if there's another shoe to drop?

Heading into the Thanksgiving Day break, we thought the only real news would be dissecting the "Black Friday" retail numbers. But the kick-off to the holiday shopping season took a back seat credit markets.

Friday's Economic Reports

The Dow Jones Industrial Average was able to make its way off the low on the session, but still gave up 154 points on the half day of trading. The Dow finished the week down 8 points at 10,309. The index appeared to find some buying once it came within striking distance of its 20-day moving average (light blue line) near 10,200 points. It'll be interesting to see if the index can hold above this support line on Monday.

The S&P 500 also tested its 20-day moving average (light blue line) on Friday, but wasn't able to get much of a bounce afterwards. The index finished the session down 19 points at 1,091. Unlike the Dow, the S&P 500 finished the day much closer to its low on the session and just above the support line at 1,080. Let's keep a close eye on the level on Monday to see if the S&P 500 is able to hold above this mark.  

The Nasdaq Composite took a beating on the open Friday morning. The tech-laden index gapped significantly lower on the open, taking the Nasdaq below its 50-day moving average (red line). Although it was able to finish the session back above that line, it still shed 29 points on the day. With the Nasdaq finishing the week at 2,138 points, it's just above this moving average. We'll be watching to see if it can hold above that 50-day moving average on Monday.  

The daily chart for the VIX (CBOE VOLATILITY INDEX) is just amazing. The "fear index" was in its element on Friday with it shooting drastically higher at the open. While the VIX was much higher during the session, it finished up 4.37 points at 24.85. The index is back above its 50-day moving average (red line) on the chart. Let's see if it continues climbing on Monday or whether this was just a one-off event.

How ironic that we were complaining about the low volatility last week and then got more than anyone wants to handle on Friday. We definitely think we did the right thing by pulling the trade alerts pre-Market because the best action is to sit out a session like that.

Heading into this week, the big news will continue to be anything out of Dubai and what kind of intertwining it has on the rest of the world. At a time like this, we want to continue to use quite a bit of caution. As of tonight, futures have opened up and are looking up. Due to this, we feel good about placing our same put spreads for tomorrow, but keeping them well out of the money. Let's use strike prices and credits that are going to take an additional move down in the Market in order to get filled.

This way, if we get filled we feel like we're taking advantage of the situation. If we don't get filled, we're quite indifferent and wouldn't mind throwing out new spreads everyday just to see if we get lucky.

NEW TRADE ALERT (3)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 500-490 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 500 strike price

Buy 15 December Puts at 490 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $505.00.

S&P 100 INDEX (OEX)

OPENING 465-455 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 465 strike price

Buy 15 December Puts at 455 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $467.50.

Google Inc. (GOOG)

OPENING 530-520 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 530 strike price

Buy 15 December Puts at 520 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $532.50.

RUT DAILY CHART

OEX DAILY CHART

GOOG DAILY CHART

As always, Trade Happy and Trade Smart

The pre-market futures are sharply lower this morning due to the troubles in Dubai. With Dubai World (a government investment company) asking creditors to postpone payments of $60 billion of debt, the world markets have been selling off hard. We weren't sure that this would have such a large effect on the U.S. Markets, but with the futures so deep into the red this morning, we think the prudent thing would be to cancel our trade alerts and wait this initial news cycle out. Let's sit on the sidelines today and see how this plays out. We are sending a notice to the auto trade brokers to cancel the trade alerts for today. We'll reevaluate everything on Sunday.

Stocks moved higher on Wednesday after up-beat economic data helped push the thinly traded Market back to the highs for the year. Traders were encouraged after most of the data points on Wednesday came in better than expected. Of course, it didn't take much to move the Market with the trading volume being so thin. Wednesday marked a new low for volume on the year with only a mere 3.1 billion shares being traded.

The optimism started with the government's report on unemployment claims hitting the lowest number of new claims in over a year. The 466,000 new claims were well below the 500,000 number that analysts had forecasted and was the fewest number since September of last year. At the same time, continuing claims fell to 5.42 million, marking a low that we haven't seen for several months. The chart below shows the abrupt U-turn.

Graphic from Briefing.com

Traders also were pleased after the personal income for last month rose by 0.2% while personal spending increased even faster with a 0.7% jump. The income number was ahead of expectations while the spending was in-line with what the Street was looking for. Consumer spending will remain in focus with the start of the holiday shopping season kicking off on Friday. How the numbers come in will tell us a lot about the possibility of a real economic recovery. The chart below shows the numbers making a bounce. We'll have to wait to see if this is temporary or a real move to the upside.

 Graphic from Briefing.com

Another big surprise on Wednesday was the new home sales number, which blew past expectations. Analysts were looking for an increase of 4.2% last month but the actual number came in at 6.2%. This adjusts the annual rate up to 430,000 sales, which was also a surprise to the upside and shows a bit of improvement in the housing market.

The only bit of disappointment on Friday was from the durable goods number. Traders were looking for a rise of 0.5% in new orders for the month of October, but the actual number came in at a negative 0.6%. While that was certainly a disappointment, there was an upward revision for the prior month, which did please the Street. Orders for the prior month were actually double the number that was reported earlier.

The dollar continued to show weakness on Wednesday, falling against most currencies. This comes just after hitting a new fifteen month low earlier in the week. The continued troubles for the greenback helped to fuel the rally in gold, which marked another record for the ninth straight session at $1,186.90 a troy ounce. This also helped boost the price of crude. Oil moved up 2.6% on Wednesday to settle at $77.96 a barrel on the New York Mercantile Exchange.

Wednesday's Economic Reports

The Dow Jones Industrial Average bounced back from Tuesday's loss with a gain of 30.69 points on Wednesday. The large-cap index advanced 0.3% to finish the session at 10,464 points. This leaves the Dow just below its high for the year, which the index marked on Monday. Let's see if it can break through this barrier on Friday.

The S&P 500 also ticked up 0.5% on Wednesday, marking a new closing high for the index on the year with its close of 1,110. It was led higher by the material sector, helping to boost the index on the lightly traded session. On the chart, the index has been in this range for the last two weeks. Let's see if it can actually break through this resistance on Friday.

The Nasdaq Composite lagged the S&P 500, but was still able to climb 0.3% on the session. The tech-laden index remains well off the resistance that it touched last week on the daily chart. However, its gain of 6.87 points on Wednesday took the tech-heavy index up to 2,176. Let's see it continues to lag the rest of the indices on the final trading day of the week.

The VIX (CBOE VOLATILITY INDEX) continued to drift lower on Wednesday, falling to its lowest level since the summer of 2008. Perhaps the pop in the VIX we encountered a few weeks ago was just a one-week wonder because the index has fallen off a cliff since that happened. The "fear index" finished Wednesday's session at 20.05 points.

The low volatility this week has made it difficult for our fills. We were hoping for the light trading volume to increase the volatility, not do the opposite. This is why we hung tight with our trade alerts during the first three trading days of the week. But with the Market moving higher and volatility moving lower, we're going to have to adjust the spreads in order to have any hope for getting filled on Friday's shortened trading session. With the Market closing early, our only hope is to get some volatility early in the session on Friday.

Our plan is to raise our strikes on the two index spreads (RUT & OEX) while also dropping our credits slightly. After the pain we took last month, we're going to be extra cautious this month. While this causes us to bring in a little less premium with the smaller credits, we want to have a very safe and smooth cycle to finish the year.

Besides these two spreads, we're also coming back with another Google put spread. The stock has continued firing on all pistons this week and we want to ride that momentum to another profitable put spread in this stock. However, we're going to place our strike prices under its previous two swing lows on the chart just in case we see any selling later this cycle. This should help give us a little extra protection and slow down any possible drop on the chart. Let's see if we can get these three on Friday and then add some more on Monday.

NEW TRADE ALERT (3)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 520-510 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 520 strike price

Buy 15 December Puts at 510 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $525.00.

S&P 100 INDEX (OEX)

OPENING 470-460 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 470 strike price

Buy 15 December Puts at 460 strike price

Total Credit 0.30 per contract

Potential Profit $450.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $472.50.

Google Inc. (GOOG)

OPENING 530-520 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 530 strike price

Buy 15 December Puts at 520 strike price

Total Credit 0.35 per contract

Potential Profit $525.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $532.50.

RUT DAILY CHART

OEX DAILY CHART

GOOG DAILY CHART

As always, Trade Happy and Trade Smart

We were a little more optimistic this morning when things started moving south, but it just wasn't enough to help us get filled in our new spreads. While tomorrow will likely be a low volume, uneventful session, let's see if we get another drop with the Market coming down to us. We're going to once again keep our orders the same and see if this plays into our hands. If not, we'll take another look at things in our next newsletter on Thursday evening (one day late due to the holiday).

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 510-500 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 510 strike price

Buy 15 December Puts at 500 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $515.00.

S&P 100 INDEX (OEX)

OPENING 460-450 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 460 strike price

Buy 15 December Puts at 450 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $462.50.

The gap higher at the open this morning made it tough for our new trades. While it feels like somewhat of a long-shot, let's keep our trades the same for tomorrow and see if we get any type of a pull-back. If not, then we'll make an adjustment tomorrow night. In the meantime, let's see if our patience pays off tomorrow.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 510-500 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 510 strike price

Buy 15 December Puts at 500 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $515.00.

S&P 100 INDEX (OEX)

OPENING 460-450 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 460 strike price

Buy 15 December Puts at 450 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $462.50.

Stocks continued to fade on Friday, but it was too late in the cycle for us. It was a rather calm expiration on Friday when stocks dropped early but then fought their way back towards break-even in the afternoon. Without any economic data being released on the session, there was very little to dissect from the trading day.

Perhaps the biggest news on the day was the trouble in the technology sector. Computer maker Dell helped drag down the sector when it reported disappointing earnings. The company's third quarter earnings came in a nickel short of expectations after Thursday's closing bell and this caused concern about the whole Market on Friday morning.

Crude fell again on Friday as the dollar found some strength. Oil dropped by $0.74 on the final trading day of the week. However, it still managed to climb 0.5% for the week when it settled at $76.72 a barrel on the New York Mercantile Exchange. Meanwhile, the dollar gained against its rival currencies on the session thanks to the unwinding of stimulus action in Europe. The European Central Bank surprised traders when it announced tighter standards for collateral that it accepts from banks.

While the strong dollar might have held back most commodities, this wasn't the case for the surging gold market. Gold continued marching higher on Friday when it jumped another $8.40 to finish the week at $1,150 a troy ounce. Nothing seems to bother the price of gold lately as traders continued to bet on rising inflation in our future.

Friday's Economic Reports

The Dow Jones Industrial Average stumbled again on Friday, but it wasn't as severe as the day before. The large-cap index fought its way back in the afternoon, actually turning green late in the day. However, it wasn't able to hold there. It finished the session down 14 points at 10,318.

The S&P 500 also showed plenty of weakness on Friday, but was able to pare some of those losses with its afternoon rally. Although the index finished well off its trading low, it still gave up 3 points on the day. This loss left the S&P 500 sitting at 1,091 heading into this week of trading.  

The Nasdaq Composite certainly was the weakest thanks to Dell's disappointing earnings release. The tech-laden index gapped lower at the open and spent most of its day deep in red territory. While a late-day run did help the index get rid of a chunk of its loss, the Nasdaq still declined by 10 points on the day. This left the index sitting at 2,146 points heading into the start of the December options cycle.

The VIX (CBOE VOLATILITY INDEX) started to really climb on Thursday and looked like it was headed higher again on Friday. However, a Market rally in the afternoon caused the VIX to take an abrupt U-turn and give back all of its gains. It finished the day down .44 of a point at 22.19 points.

With Friday marking the end of the November cycle, it's time to add up the damage from the month. When a spread turns against us and then keeps moving in the wrong direction, it's easy to look back and say, "I'm glad I got out of that one." But that's not what happened this cycle. After Friday's closing bell, it looks like all of our spreads would have expired worthless. Now that's quite a difference from the loss that we ended up with this month.

Unfortunately, the fact that our strategy this month would have worked out does nothing to help our losses. However, it does confirm that we had the right plan of attack this cycle. But let's not dwell on the red from last month, let's add up the losses and then get started on making that money back in the new options cycle.

EXPIRED/CLOSED NOVEMBER SPREADS

RUT 530-520 BULL PUT SPREAD (15 Contracts entered on 10/21/09)

Profit of $50.00 per contract

RUT 630-640 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Profit of $35.00 per contract

OEX 455-445 BULL PUT SPREAD (15 Contracts entered on 10/22/09)

Profit of $55.00 per contract

OEX 515-525 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Original Credit of $45.00 per contract

Debit on close-out $340.00 per contract

Total loss of $295.00 per contract

MNX 155-145 BULL PUT SPREAD (15 Contracts entered on 10/28/09)

Profit of $40.00 per contract

AAPL 185-180 BULL PUT SPREAD (15 Contracts entered on 10/26/09)

Original Credit of $40.00 per contract

Debit on close-out $183.00 per contract

Total loss of $143.00 per contract

GOOG 500-490 BULL PUT SPREAD (15 Contracts entered on 10/27/09)

Profit of $55.00 per contract

GOOG 580-590 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Original Credit of $35.00 per contract

Debit on close-out $200.00 per contract

Total loss of $165.00 per contract

These totals still leave us with a stinging feeling heading into the December cycle. Let's use that feeling to keep our strategy very conservative heading into the final trading month of the year. Our index put spreads have been like money in the bank for us during our winning streak and seem like a good place to start this month. Although we remain skeptical about the rally continuing, we learned first hand what happens when we step in front of this bullish freight train. With this in mind, let's stay on the put side of things and keep ourselves as far out of the money as possible. We're going to start with two index spreads for Monday and see if we can get things started on the right foot. As usual, if we don't get filled we'll send out a new alert on Monday evening.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 510-500 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 510 strike price

Buy 15 December Puts at 500 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $515.00.

S&P 100 INDEX (OEX)

OPENING 460-450 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 460 strike price

Buy 15 December Puts at 450 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $462.50.

RUT DAILY CHART

OEX DAILY CHART

As always, Trade Happy and Trade Smart

Stocks finally drop, but it's a little too late for us. It was the tech stocks back in the leadership role today, but it was the direction that was different. After disappointing earnings and troublesome economic data, stocks headed lower shortly after the open and stayed there for most of the session. However, a late-day surge helped pare significant losses by the time the closing bell rang.

Trouble for tech came from a couple of quarterly results that missed expectations. Both Autodesk and Salesforce.com got whacked after reporting results, helping to drag down the Nasdaq Composite.

Following suit, the housing market got some bad news this morning when the Commerce Department reported that the number of housing starts fell to the lowest level in six months. The government report showed a decline of 10.6% in October, taking the seasonally adjusted rate down to 529,000 units. This is the lowest level since April and was sharply under the 600,000 units that the Street was anticipating. Perhaps the only bit of good news in the report was the fact that the inventory of homes under construction has fallen to a record low of 560,000 units. The key for a reversal in the housing market starts has to start with a huge reduction in inventory and this is what we've been seeing over the past year. The question now is, "How much farther does it need to go?"

Graphic from Briefing.com

In other economic news today, the Labor Department reported that consumer prices ticked up more than expected in October. The government data showed a rise of 0.3% last month, which was ahead of the 0.2% that analysts were expecting. At the same time, core CPI, which excludes food and energy, also rose slightly more than expected with its reading of 0.2% last month. The rise in inflation was instigated by the biggest jump in car prices in nearly 30 years, thanks to the government's Cash for Clunker's program. This also caused the price of used cars to rise last month. If we throw out the rise in automobiles, inflation really remained in check last month.

There was also some concern over comments made by the President. He told a news agency that he's worried that too much government spending might cause the country to go through a double-dip recession. Of course, we've been talking about that concern for quite a while now.

After falling last week, Crude has bounced back at the start of this week. It was helped this morning by the Energy Information Administration's inventory report. According to the government, crude supplies declined by 900,000 barrels last week as demand picked up. Ahead of the release, analysts were looking for a build in supplies, not a drop. Crude finished the day up $0.44 a barrel at $79.58 on the New York Mercantile Exchange. At the same time, the EIA reported that gasoline stockpiles shrank by 1.7 million barrels last week.

Gold continued its run to the upside today, hitting a new record for the fourth straight trading day. It wasn't able to hold onto all of its gains, but still closed up $1.80 an ounce at $1,141.20. Of course, it was helped once again by the falling dollar, which dropped against the other major currencies.

Today's Economic Reports

The Dow Jones Industrial Average snapped its recent string of gains today when it gave up 11 points to finish the session at 10,426 points. The large-cap index turned in its first losing session of the week, but the small loss keeps its upward momentum still alive.

The S&P 500 also ran into some trouble in today's session, but was able to erase most of its losses by the end of the day. It finished the session down only 0.52 of a point at 1,109. On the chart, the S&P 500 appeared to be pulling back to its former resistance level the past two sessions. But as long as it holds in this area, it looks like it wants to head higher.

The Nasdaq Composite also made a run up the chart this afternoon, but that was too little too late for the tech-laden index. It still finished the day down 10 points at 2,193. Unlike the other two indices, the Nasdaq really showed internal signs of weakness today. Let's continue to watch this one closely for a leadership role (in either direction) the rest of the week.  

The VIX (CBOE VOLATILITY INDEX) appeared to be headed higher for most of the session, but a late rally in the Market took the "fear index" lower this afternoon. It finished the session down 0.78 of a point at 21.63. If the Market moves higher the rest of the week, we should see the VIX continue to fall.  

The tough November cycle got a little rougher for us this week when Google broke through our stop on our call spread. This took our loss deeper into red territory and put the nail in the coffin as far as our winning streak was concerned.

Are we disappointed the way things turned out this cycle? Absolutely! Were we surprised that our winning streak is coming to an end? No, because that's the way trading goes. We knew that sooner or later we'd take a loss. The way this cycle turned out is the frustrating part. Over the past week or two we've talked about the schizophrenic moves that the Market has made this month, so there's no need to rehash the same thoughts here.

As it stands now, we wouldn't be surprised if all of our spreads would expire worthless on Friday. But trying to control risk is probably the most important part of trading, and that's why we had to force ourselves to shut the spreads down early when they started to get away from us. As much as we might have believed they were the right spreads, we couldn't justify staying in them and possibly taking much larger losses this cycle.

Along that same line, the sizes of the losses this month were certainly a lot larger than we would have liked. With the VIX popping and dropping, the cost of closing out some of these spreads really hurt us. Normally, the cost of closing these positions out would have been half that cost. That would have chopped the losses down dramatically. But, there's nothing we can do about that part. The only thing we can do is get back as much of those losses as possible next month and that's precisely where our attention has turned. We have some very good spreads ready for December, but we need to see how things play-out the rest of this week. With that said, let's take a look at how our remaining positions are sitting heading into the final two trading days of the cycle.

CURRENT NOVEMBER SPREADS

RUT 530-520 BULL PUT SPREAD (15 Contracts entered on 10/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $535.00

RUT 630-640 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $625.00

The RUT has moved up this week thanks to Monday's big advance. However, the index remains perfectly positioned for our iron condor. Too bad the rest of our positions couldn't follow the RUT's pattern this month. In today's trading, the small-cap index fell 2.19 points and finished the day at $600.15. Unless anything bizarre happens, we shouldn't have anything to worry about in this one.   

OEX 455-445 BULL PUT SPREAD (15 Contracts entered on 10/22/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $457.50

OEX 515-525 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Original Credit of $45.00 per contract

Debit on close-out $340.00 per contract

Total loss of $295.00 per contract

With just a put spread remaining in this position, we shouldn't have anything to worry about any longer in this one. The OEX actually ticked up $0.45 in today's trading to finish the session at $516.54. This leaves the index over 100 points above our put spread with time running out.

MNX 155-145 BULL PUT SPREAD (15 Contracts entered on 10/28/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $157.50

The MNX drifted lower today along with the rest of the tech names. But even with its $1.05 loss, the index remains well above our position with its closing price of $180.17. This gives us a safety net of over 25 points and not a lot of time left until expiration.

AAPL 185-180 BULL PUT SPREAD (15 Contracts entered on 10/26/09)

Original Credit of $40.00 per contract

Debit on close-out $183.00 per contract

Total loss of $143.00 per contract

GOOG 500-490 BULL PUT SPREAD (15 Contracts entered on 10/27/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $505.00

GOOG 580-590 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

With only a put spread remaining in this position, we shouldn't have any concerns over the next two trading days. However, it will be interesting to see if the stock closes below our old call spread on Friday. In today's action, the stock gave back $0.84 and finished the day at $576.65. Obviously, even if we were still in this spread this would be a little too close for comfort heading down the home stretch. But make no doubt about it, it will be like a poke in the eye if it closes below our call spread on expiration.

As always, Trade Happy and Trade Smart

A late rally helped lift stocks on Friday as stocks resume upswing. Last week's rally started to wane after Thursday's sell-off, but a surge on Friday put the bulls back in control and left stocks moving higher at the end of the week.

The Market got a boost from some better-than-expected quarterly results in the retail sector on Friday. Strong numbers from Walt Disney, J.C. Penny and Abercrombie & Fitch helped propel stocks higher. These discretionary stocks helped ease some of the concern after a troubling report from the University of Michigan.

According to the index of consumer sentiment, confidence has started to wane among consumers. In its initial reading for the month of November, the University of Michigan consumer sentiment index dropped to 66.0. This was quite a bit lower than the 71.0 that analysts were expecting and was also less than the 70.6 reported in October. The only bright spot is that this number could rise when the final number is reported in two weeks. While the reading doesn't have a high correlation between sentiment and spending, it certainly isn't a positive when the index starts dropping like this.

Graphic from Briefing.com

In other economic data released on Friday, the government announced a widening of the U.S. trade balance. According to officials, the U.S. import prices have risen faster than export prices, causing the trade balance to drop to a negative 36.5 billion. While this number isn't positive, this data usually has very little significance to Wall Street.

It was another big day for gold on Friday as investors continued to dump the dollar and head to the safer material. Gold finished the session up $10.10 and closed the week up nearly 2% at $1,116.10 a troy ounce.  

While gold was headed higher, oil was headed in the other direction. It shed another $0.59 on Friday and finished at its lowest mark in nearly a month at $76.35 a barrel on the New York Mercantile Exchange.

Friday's Economic Reports

The Dow Jones Industrial Average bounced back from Thursday's sell-off with a 73 point gain on Friday. Although it wasn't able to hold on to all of its gains on the day, it still managed to post a 247 point gain last week. This 2.4% advance puts the large-cap index at 10,270 and once again is closing in on its high for the year. This next resistance line will be the one to pay very close attention to this week.  

The S&P 500 also bounced back on Friday with a 6 point climb on the final trading day of the week. For the week, the index moved up 24 points to finish the five day stretch at 1,093. Similar to the Dow, the S&P 500 is now just below its high for the year. However, unlike the Dow, this area near 1,100 points has been stiff resistance twice already for the index. Let's see if this barrier can keep the index below it this week.  

Last Wednesday we were looking at a doji candle on the Nasdaq Composite daily chart and wondering if we were going to get the reversal. After getting a move lower the following session, things went back to the upside on Friday when the index rose 18 points. It finished the week up 55 points for the five trading days, settling at 2167 points. Unlike the other two charts, the Nasdaq remains under its old resistance barrier. Let's see if it stays that way over the next five trading days.

We already spent quite a bit of time last week discussing the remarkable daily chart for the VIX (CBOE VOLATILITY INDEX). After rising nicely for us on Thursday, the VIX decided to stay below its 50-day moving average (red line) on Friday when it dropped 0.88 points to finish the week at 23.36. Heading into this week, we need the VIX to get back above that 50-day moving average if we have any chance for our call spreads to make it to the finish line intact. Let's keep a very close eye on this index over the next five sessions.

It's been a rough and tumble type of option cycle for us this month. Unfortunately, we still have another five trading sessions to go. Thank goodness these types of cycles have been few and far between during the last twelve profitable months because times like this make trading not so much fun. As we've been saying during this month, we just want to survive this type of environment with as small a loss as possible. When the trading gets as choppy and wild as it has been this cycle, that's the best we can do. Get through it and then make up for it next month!

Our one big hurdle left is our Google call spread. The stock spent most of Friday afternoon headed lower, which was perfect for our call spread. But then a late-day rally on big volume took the stock up to its high of the session and put it just a few bucks under our close-out trigger price. Heading into Monday, we want to see futures down sharply before the opening bell. We definitely don't want to see them higher because the early morning volatility could cause our contingency order to get hit very easily.

At the same time, we don't want to adjust this order because we want to minimize any potential loss as much as possible. "Keep them small and manageable" has been the key to success during the past twelve months. Unfortunately, our OEX spread gave us a bigger loss than we were hoping so we don't want to have the same thing happen in Google.

In this spread, we have our stop set five points before our "short" strike price, which is a 2.50-point difference from where our OEX trigger was set. This should help if our close-out gets executed. But let's not spend a lot of time stressing over what might happen. Let's just make sure our orders are already set and see how things get started on Monday morning. In the mean time, let's take a look at how all of our spreads sitting heading down the home stretch.

CURRENT NOVEMBER SPREADS

RUT 530-520 BULL PUT SPREAD (15 Contracts entered on 10/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $535.00

RUT 630-640 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $625.00

The RUT is certainly giving us a divergence from the major indices. Rather than racing back towards its high for the year, the small-cap index has been hovering below its 50-day moving average (red line). Keep in mind that small-caps usually lead the way higher or lower whenever the Market moves. With the RUT remaining suppressed, it makes us wonder if we're not going to see the major indices roll over sometime soon. On Friday, the RUT moved up $5.96 and closed at $586.28. Currently, both our call spread and put spreads look to be in good shape this month. Too bad not all of our iron condors could be sitting as pretty as this one.

OEX 455-445 BULL PUT SPREAD (15 Contracts entered on 10/22/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $457.50

OEX 515-525 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Original Credit of $45.00 per contract

Debit on close-out $340.00 per contract

Total loss of $295.00 per contract

After getting our call spread closed out on Wednesday, the OEX fell and hasn't been back up in this same area since. However, it did advance $2.63 points on Friday to finish the week at $508.08. As we said last week, we were hoping that any necessary adjustment would take place on the final week of the cycle to help curb any potential losses. If we could have just survived that early morning pop in the index on Wednesday, that would have been the case in this one. Of course, that's water under the bridge now. With just our put spread still working in this one, we shouldn't have anything left to worry about in the OEX.

MNX 155-145 BULL PUT SPREAD (15 Contracts entered on 10/28/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $157.50

With just a put spread in this index, we don't have a lot of stress relating to the MNX. The index climbed 1.55 points on Friday and closed the week at 178.86 points. It is once again pressuring its high for the year on the daily chart, (which could spell trouble for our Google call spread). But as far as our MNX put spread, we should be able to sit back and relax in this one.  

AAPL 185-180 BULL PUT SPREAD (15 Contracts entered on 10/26/09)

Original Credit of $40.00 per contract

Debit on close-out $183.00 per contract

Total loss of $143.00 per contract

GOOG 500-490 BULL PUT SPREAD (15 Contracts entered on 10/27/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $505.00

GOOG 580-590 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $575.00

After getting our doji (reversal) candle on Wednesday, things were going as planned on Thursday when the stock was dropping nicely. However, that didn't quite pan out on Friday when the stock surged at the end of the trading day to go up $4.20 on the session. With it now sitting at $572.05, it's a little too close for comfort. Heading into tomorrow, make sure your stop is set on the call spread because it could get a little tricky if the futures are pointed upward. 

As always, Trade Happy and Trade Smart

The Market climbs again and crushes us along the way. Stocks made it six sessions in a row and we felt the pain because of it. The quick move up this morning took us out of one call spread and turned the heat up on another one. We'll get to this in a bit, but first let's recap the trading session.

Stocks got another boost from the falling dollar this morning as the Market moved higher right out of the gate. With the Fed talking about keeping interest rates low and with continued government spending, the greenback should be under selling pressure for the foreseeable future.

Traders keyed in on words from the Dallas Fed on Tuesday night when President Fisher talked about keeping interest rates low for quite a while. Of course, this has been bullish news for commodities like gold, which continued to climb this morning. Oil also moved higher until a rebound in the dollar cut into its gains. Crude finished the day up $0.23 at $79.28 a barrel on the New York Mercantile Exchange. Because of the holiday, the weekly inventory report from the Energy Information Administration was pushed off until Thursday morning. This should get crude moving in one direction or the other tomorrow.

The Market also seemed to like news from the homebuilders last night when companies reported a jump in signed contracts for new homes. Toll Brothers announced on Tuesday evening that its new contracts rose by 42% during the previous quarter. This news not only helped the rest of the home builders but also lifted retail names like Home Depot early in the session.

Today's Economic Reports

The session certainly lacked economic data, but that didn't stop the Dow Jones Industrial Average from jumping at the opening bell. Although the index didn't hang on to all of its gains on the session, it still managed to lock in a gain of 44 points at the closing bell. This 0.43% advance put the Dow at 10,291 points. On the chart, the daily candle isn't a bullish candle, but that has done very little to slow down this bullish freight train of late.

The S&P 500 also hit its high shortly after the opening bell, but was still able to finish the day up 5.50 points at 1,098. Even more bearish than the Dow's daily candle, the S&P 500's long upper shadow is usually a bearish sign. But as we said about the Dow, it's very hard to bet against the upward momentum that the index has appeared to regain over the past week and a half.......unfortunately for us.

As we go down the daily charts, each daily candle looks a little more bearish. The Nasdaq Composite is giving us a doji candle, which is a reversal formation. But as we've said about the past three charts, maybe this is just trying to be optimistic. On the day, the index moved up 15 points to close at 2,166.

The VIX (CBOE VOLATILITY INDEX) finally slowed down its massive descent today when it actually climbed 0.20 of a point to close at 23.04 points. We are simply amazed at the daily chart on the VIX. The huge run-up one week and then an even bigger fall the next. Wow!

Really, just look at that VIX chart one more time. That's the reason why we've felt that pain this month. When something like this happens, it's nearly impossible to trade without getting nauseous. But even more bizarre is watching the moves without any serious catalyst driving the moves. At least a year ago we had plenty of reason. This month, it's been serious moves on not so serious news. While this helps makes a little more sense out of our current situation, it still doesn't make the losses any less painful.

Our stretch of 12 straight profitable months was one heck of a ride while it lasted. Unfortunately, it looks like that'll probably go by the wayside this month with today's brutal loss in our OEX call spread. With the Market continuing to charge higher, we knew that we would likely be in trouble after the indices broke through old resistance levels on the chart. But then again, we thought the same thing just two weeks earlier in the put spread. It's cycles like this one that makes us age prematurely and puts a dent on our wallets.

We were hoping that we could at least make it through this week without having to shut any spreads down because then we'd see the time decay really start to kick in. This would have helped chip away at those premiums and lessened the pain of having to close out any spread early. But that wasn't the case. The worst part is that we still have some heat on us in our Google spread.

Perhaps the hardest part about this business is being able to compartmentalize our trades. After taking a beating in the OEX spread today, most traders just want to throw in the towel and shutdown the other spreads prematurely. This is when we need to give the spreads time to work in our favor. Usually when we use our patience and ride out the bumps, it ends up making us profitable in the long run. We're betting that this is one of those times. If we can keep the loss this month in sight, we can make it up next month. With that said, let's take a look at how we're sitting in the rest our November spreads.

CURRENT NOVEMBER SPREADS

RUT 530-520 BULL PUT SPREAD (15 Contracts entered on 10/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $535.00

RUT 630-640 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $625.00

The RUT was also on its way much higher earlier in the trading day. While it still moved up $5.78 on the session, it closed well off its high. Actually, its high was at the RUT's 50-day moving average (red line). The fact that it reversed after hitting this line was good news for the bears, but let's just see if this was a temporary set-back. With the RUT closing at $592.71 today, we have just under 40 points of breathing room in our call spread and over 60 in our put spread. We're not sitting too badly in this one.

OEX 455-445 BULL PUT SPREAD (15 Contracts entered on 10/22/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $457.50

OEX 515-525 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Original Credit of $45.00 per contract

Debit on close-out $340.00 per contract

Total loss of $295.00 per contract

Well, it's hard to sugar coat this one. The pop this morning in the index took us out of the call spread with a pretty heavy loss. For our put spread, it should be able to coast to the finish line. It's sitting over 50 points below the index, which closed today at $509.92.

MNX 155-145 BULL PUT SPREAD (15 Contracts entered on 10/28/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $157.50

We're certainly glad we didn't come back with a call spread on this one. In today's session, the MNX climbed $0.98 while breaking through an old resistance level on the daily chart. With it now sitting at $178.30, we shouldn't have to sweat over our put spread in this one.

AAPL 185-180 BULL PUT SPREAD (15 Contracts entered on 10/26/09)

Original Credit of $40.00 per contract

Debit on close-out $183.00 per contract

Total loss of $143.00 per contract

GOOG 500-490 BULL PUT SPREAD (15 Contracts entered on 10/27/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $505.00

GOOG 580-590 BEAR CALL SPREAD (15 Contracts entered on 11/05/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $575.00

Google is probably our last big concern this month for the Regular Members. The stock made a big move up this morning and appeared headed towards our trigger price on our call spread. But a nice reversal in the morning and sell-off in the early afternoon gave us some optimism in this one. However, we didn't like the climb late in the trading day. Looking at the daily chart, the stock is giving us a doji candle, but it's hard to bet too much against the bulls in this one. With the stock still managing to climb $3.80, it's certainly within striking distance of our spread with its closing price of $570.56. Heading into tomorrow, let's monitor it closely but make sure your stops are set ahead of time.

As always, Trade Happy and Trade Smart