When Greed Takes Over

The first trading day in August is typically weak, with the Dow down 8 of the last 11 years, and up only 1.1% in 2007. The extended ranges we are now seeing, 21 day up periods, or lengthier consolidations, around often reducing VIX, help confirm to me that the high velocity computer trading, and our famed Plunge Protection Team, have done a great job holding the market up.

It might go up more. When greed takes over, as we now know, nothing stops it, until.....

The August 480C was day tradeable for .50 profits Friday, in a market that moved from a low of 9133.45 to a high of 9218.77, a hundred points of excruciating struggles around support and resistance lines.

We had good profits on the August 455 Put, day trading for up to a 1.00 per contract, and able to buy first inventory to this new hedge position as low as 6.70.

Many traders wrote in, with the highly overbought market, asking if it was wise to hold the August 440Put or take stop loss.

My answer here is always complicated, yet simple:

1. Our 4 day stop loss is meant to work best around monthly options, that will erode more each Friday as they progress towards expiry.

2. There are always times that holding several days longer can allow the move to take place, and bring the option to break even, or profitability.

3. The risk, however, increases, with erosion and a typically now OTM strike point.

The bottom line: holding longer depends entirely on how you follow the system rules, and your risk orientation.

And,as a comment on one of the best economic moves I've seen, is the response to cash for clunkers. Good that we put 2 billion more to this; we are seeing that big government, done right, can create long term industrial development by consumer spending. And for the Republicans immediately arguing about "big government," let's not forget The Emperor and The Shooter from the last 8 years, that built one of the largest of all governments, with massive debt.

* One Basic Rule – Let the Winners Run, Cut the Losses Quickly. You've now read what usually happens, last week, where we let the losses run, so now focus on "rules" of selling, even if those rules involve your losing, because you can always lose more.


"Floyd, Just signed up for your Blue Chip new service. I've been reading your Blue Chip blogs, and as I trade daily on the OEX and what else you've taught me, and read that new subscribers ask these questions I have memories of when I began this trading odyssey with you 18 months ago.

After spending big bucks for Advanced Mentoring, and being on waiting list for three months, I was paper trading and learning at level 3 service. Since I have joined you, and costed in all I have paid for the services, I have earned over $141k. In 20 years of trading different ways, I hesitate to even wonder if I ever made money, except for money in my 401k from a job I had.

You are a very astute teacher, and I wish you luck with the new Blue Chip service. Thanks for teaching me. AON, Chicago"