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I'm not a spider but...
My take on this was yesterday the VIX was at an extreme low with price
at an extreme high. Not quite a Connors VIX Reversal (a la Larry Connors
of Oceanview Fin'l) but the VIX did hit the 21 period 2 sigma lower bband
and reverse, creating an "almost-Connors-VIX-reversal" so the concept
was in place. Add to that the market having been in three successive up
closes followed yesterday by an early high and the stage was set for a
reversal day.
Intraday, there was a 123 high followed by a hook which was very readable
on the OEX cash 30 miute chart.
So at about 1230ET I bought OEX Sep 920P for 16 1/8 to go short, expecting
the day to make a reversal with some followthrough the next morning, or
today.
When all hell broke loose in the afternoon and the market went down fast
I took off part of the position at 19 and decided to see what the close
was like before exiting or holding overnight. The close being very weak
and having taken some of the position off already, I decided to hold.
Figuring on a punch down in the morning followed by a retreat, I set in
a limit order to sell the rest of the position at 21 or better for the
next day (today, Friday). When I got to the screen in the morning and saw
the spooz off about 10 I couldn't believe it. That must have been a data
error, but it wasn't. They were screaming doom and gloom on CNBC. "I don't
want to make things sound worse than they are but when the rest of the Dow
stocks open we're going to go down much more than we are right now" said
the announcer.
I quickly cancelled the order to sell and decided to run it manually.
Just after the open, it saw it go to 25 bid 27 for a brief minute or
so and then retreat. CNBC was saying how bad it was. I figured it was
time to leave so I got out, filled on the pullback at 23 3/4 as it was
23 3/4 bid 25 by that time.
As far as I can tell, this is a classic case of the Connors VIX reversal.
Market reaches a top, people are complacent, resting in the "spider web"
as you put it. Then all of a sudden, the bears (spiders) pop out of the
woodwork and you have a short trade.
Happy hunting...Trader Phil in Cupertino CA
bobrabcd@xxxxxxxxxxx wrote:
>
> OK Walt, more spider tales. An implied volatility web was being woven ever
> so slowly as the VIX Zone score was drifting into complacency and the
> market inched higher. Finally the VIX Z score hit -2 and the web was
> complete. All the victims were stuck except for the symbiotic traders who
> had survived previous encounters with the web and infact made a practice of
> taking from the web. They had learned that when all is quiet on the
> volatility front and the spider sleeps it is time to prepare for a quick
> sojourn into and out of the web with a reward for the risk encountered.
> Ninety percent gains were achievable in OEWTH Aug 940 puts in two hours.
>
> BobR
>
> At 06:12 PM 8/7/97 -0400, you wrote:
> >Last weekend, one of the predictions I made was:
> >
> ><
> >Sept Heating Oil
> >Why on earth would this market go higher? No major Summer
> >storms to hinder production means lower prices.
> >Historically the suppliers run tight inventory when
> >supply appears to be abundant. so......
> >SELL Opens below 57.00 Protective stops above 57.00
> >Take profits near 53.75
> >The only thing that bothers me about this trade is that
> >many people seem to be of the same opinion. Still, I will
> >take the trade if 57.00 isn't immediately broken. >
> >
> >
> >Well, on Monday I sold, and for 3/4 of the day everything
> >was peachy. I had a profit, and I was sitting at break even
> >and...... GEURILLAS!! GEURILLAS!!! BUYBUYBUYBUYBUYBUY
> >
> >I was stopped out so quickly, I didn't even have a chance
> >to feel bad.
> >
> >So, with the market sitting two points higher, and the
> >whole world wanting to buy Heating Oil, what was my
> >opinion of market direction? UNCHANGED. This little story
> >will show you why:
> >
> >Here in the small Florida town of Zephyrhills we have
> >your typical Floridian wildlife; spiders big as catcher's
> >mitts. Not as numerous as in the movie Arachniphobia, but
> >almost.
> >
> >Outside my trading office window, a small phone-book
> >sized spider had taken up residence. I could have
> >squashed him, but the spiders tend to eat the REALLY
> >bad bugs, so I let him be.
> >
> >Each day, as the sun was going down, and my trading day
> >was coming to an end, my 8 legged friend, safe from the
> >heat of the day, would wander out onto his web. It was
> >amazing to watch him work. A total model of efficiency;
> >no wasted movement; a place for every strand, and every
> >strand in its place.
> >
> >Watching him hunt was an analagous trading lesson I won't
> >forget. Did he run all over the place looking for a bug to
> >club on the head and devour? Nope. He just..... sat there.
> >His web was cast, and he KNEW the edibles would come.
> >
> >In no time, a B-52 sized cricket, long in the legs and
> >short on the brains, was hoplessly (pun intended)tangled in the web. The
> >spider looked at him fondly and......SMILED.
> >Call it Literal license if you want, but I think I know
> >a smile when I see one. I'll let your own imagination
> >serve as the grisly creator of the neat packaging and
> >consumption that followed.
> >
> >On August 4th 1997, Heating Oil rose to the stars. Geurillas
> >were behind every bush. Rumors of plant shutdowns were all
> >over the news. But, as a trader, remember that the providers
> >of information may also serve as unwitting catalysts for
> >the clever sowers of disinformation.
> >
> >Most traders now wanted to BUY Heating Oil contracts and
> >Heating Oil options at ANY price.
> >
> > Me?....... I just thought
> >THE SPIDERS ARE SMILING.
> >
> >[8/4 SOLD on Open 56.70 Stopped out 57.30 BUT the Spider
> >is smiling so.......
> >
> >8/6 SOLD 57.60 breakout of previous day's Low. Currently
> >short at 55.45.Will exit during the night or on the Open.
> >
> >TRADE 1 $272 Loss per contract after commissions
> >TRADE 2 $883 profit per contract after commissions ]
> >
> >Walt Downs
> >CIS Trading
> >
> >
> >
>
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