XJO overbought - Will going short work?

[seaurchin]

like a company can and index be overbought?? I see analysts like the guy on TV..newspaper from commsec ..''this markets still going higher because of this and that ..surely after a rise of this magnitude they should be asking for CAUTION ...its heated and we know what happens in hot markets.
Do these analysts buy for them selves ?? or do they make commission telling you to buy the market ..would they be telling there parents to buy now..surely not..''may be you could buy option ''PUTS " or is shorting beyond the average investor?'' wait and see panick come into this rally with NEWBIES lured into a market that will come down hard....AGAIN..just wisdon.
puts ...xjo looking @ 4250 sept. now.

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

like a company can and index be overbought?? I see analysts like the guy on TV..newspaper from commsec ..''this markets still going higher because of this and that ..surely after a rise of this magnitude they should be asking for CAUTION ...its heated and we know what happens in hot markets.
Do these analysts buy for them selves ?? or do they make commission telling you to buy the market ..would they be telling there parents to buy now..surely not..''may be you could buy option ''PUTS " or is shorting beyond the average investor?'' wait and see panick come into this rally with NEWBIES lured into a market that will come down hard....AGAIN..just wisdon.
puts ...xjo looking @ 4250 sept. now.

If IV's are low, consider a straddle.

 

[Battman64]

Re: 8-9% rise in XJO index can this be overbought ?

80% to 90% of new traders lose money
This is a very well known fact.
Many new people have been busy buying stock today.

 

[seaurchin]

Re: 8-9% rise in XJO index can this be overbought ?

thanks waynl...i noted straddle if iv low the broker and clients have taken some as well 4250 septxjo. puts...slight increase since the huge rise friday on xjo.Yesterday weakness could bring volatility into this market hence puts rising with open interest. ''View from the top '' shares mag p68 good read.
cheers .smile for a change as steam comes out of this market.

 

[positivecashflow]

Re: 8-9% rise in XJO index can this be overbought ?

hence puts rising with open interest

High Open interest on put does not necessarily suggest a bearish market. Open interest simply means positions opened thus eg when you "sell to open" a put, this would imply a bullish position. Open interest does not give a view either on synthetic positions eg long stock/long put = synthetic call = bullish.

 

[seaurchin]

Re: 8-9% rise in XJO index can this be overbought ?

waynel& pcf...hey I'm not closing my position in 4250puts sept.

my broker actually rang and congratualated me as if i had already made money ...well i have on paper ...we (broker) and me decided to hold for
expectation XJO reversal is closer to 4200 or lower.
I have not see USA ..dow jones have a bad night?? If this by chance happen a fall in XJO could be much anticapated ..volatile creeping in ?
cheers to you both.

 

[Battman64]

Re: 8-9% rise in XJO index can this be overbought ?

80% to 90% of new traders lose money
This is a very well known fact.
Many new people have been busy buying stock today.

Wasn't this the truth?

 

[tech/a]

Re: 8-9% rise in XJO index can this be overbought ?

Many old hands were buying as well.
Most old hands are aware of corrective moves.
Many old hands are prepared/infact expect occasional losses.

Easier to trade with a long term plan.
Its not about being right or wrong its about being profitable.
Corrections and less than perfect timing are simply a cost of business.

The 90% that lose dont lose purely because they dont get their timing exact.

Could still come off some more.

What do you think is in store say over the next 3 mths? (Anyone).
And if your not buying now when would you?---just interested.

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

Trading short only works well with short term methods.

Longish term, trend trading methods are no good for shorting.

For instance If tech shorted those multibagger trades, the profit would *always* be less than 100% (unleveraged) whereas long trades can bag 200, 500 1000%

This mean the risk reward is not worth it....simple mathematics.

Swing trading is a whole 'nuther bowl of wax though.

Cheers

 

[Mofra]

Re: 8-9% rise in XJO index can this be overbought ?

Trading short only works well with short term methods.

Longish term, trend trading methods are no good for shorting.

For instance If tech shorted those multibagger trades, the profit would *always* be less than 100% (unleveraged) whereas long trades can bag 200, 500 1000%

This mean the risk reward is not worth it....simple mathematics.

Swing trading is a whole 'nuther bowl of wax though.

Cheers

Wayne,

You wouldn't class a long put trade as (effectively) a short? I've always called them such for ease of explanation, because leveraged or not you are profiting from a falling stock price.

Cheers

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

Wayne,

You wouldn't class a long put trade as (effectively) a short? I've always called them such for ease of explanation, because leveraged or not you are profiting from a falling stock price.

Cheers

Yes you are short because the delta is negative.

But I wouldn't class a long put as a long term trade.

I regularly short, (in fact most of my recent profits have been from shorts), but if i was trading techtrader, I would most definately not short sell.

Trend trading works becuase of the outliers i.e. the few trades that net several hundred unleveraged percent.

If you backtest these types of systems using shortselling, the results are underwhelming.

Example:

Lets say XYZ wnt from $1 all the way to $10 and then collapsed all the way back to $1 again

Trader A goes long @ $1 and clairvoiantly sells at the exect top of $10. He has made 900%

Trader A phones his mate Trader B and tells him that XYZ is buggered and has sold.

Trader B thinks its a good short and does exactly that, he shorts XYZ @ $10. Blessed with the same forsight as Trader A, Trader B covers at the exact bottom....$1

Both traders have traded a $9 move in exactly the same stock. The long trade netts 900% yet the short trade only 90%.

The cruelty of mathematics!!!!

Cheers

 

[tech/a]

Re: 8-9% rise in XJO index can this be overbought ?

Must remember that example Wayne.

Guess thats why its called a short -----
And a Longs---well Long-- hahahah

 

[clowboy]

Re: 8-9% rise in XJO index can this be overbought ?

Waynel

That example puts the mathmatics side of profit into persective so well.
The deception of price movement is amazing.

Thanx for posting that example - it is helpful to those of us who already understand (as well as those who may not) it even as a refresher.

Thanx

 

[Mofra]

Re: 8-9% rise in XJO index can this be overbought ?

Wayne,

Thanks for reply & putting it so clearly. Just one final question on shorting, I haven't short sold equities before but I thought if you were to short sell XYZ at $10 you were only required to put up a margin for the sale (much like a written call or put). Although in percentage terms long trading would still hold a sizable advantage, on the margin would it not be possible to gain a greater than 100% return?

Thanks

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

Wayne,

Thanks for reply & putting it so clearly. Just one final question on shorting, I haven't short sold equities before but I thought if you were to short sell XYZ at $10 you were only required to put up a margin for the sale (much like a written call or put). Although in percentage terms long trading would still hold a sizable advantage, on the margin would it not be possible to gain a greater than 100% return?

Thanks

That is true for Australian Accounts. However, if you are using money management, your position sizing will be the same for shorts as for longs, irrespective of the leverage available.

In the US markets you cannot short shares unless you have a margin account and the margin requirements are identical for longs or shorts. Likewise for aussie CFD accounts.

Cheers

 

[Mofra]

Re: 8-9% rise in XJO index can this be overbought ?

WayneL,

Many thanks for reply. You seem to have also touched on the issue of position sizing for leveraged products vs shares, something I had problems with early on. Given your experience and the clarity with which you explained the greeks, if you get a chance to explain your method of position sizing your option trades I'm sure more than a few would find it interesting.

Ta

 

[seaurchin]

Re: 8-9% rise in XJO index can this be overbought ?

i've taken proifits and sold out puts 4250sept.good return.
lost the ANZ puts but still managed to grab better than expected...theloss was well less than my profit on 4250 s ..cheers and waiting for next one??
i've bought 2 stocks ...OTL...and TNE....low bases coming off and have been oversold worth a look ?cheers

 

[DTM]

Re: 8-9% rise in XJO index can this be overbought ?

i've taken proifits and sold out puts 4250sept.good return.
lost the ANZ puts but still managed to grab better than expected...theloss was well less than my profit on 4250 s ..cheers and waiting for next one??
i've bought 2 stocks ...OTL...and TNE....low bases coming off and have been oversold worth a look ?cheers

XJO and ANZ's starting to look weak to me. We could be in for a big fall.

 

[seaurchin]

Re: 8-9% rise in XJO index can this be overbought ?

dtm....i'm out of all options for now ..while i;m in front.
have bought TNE,GTG,OTL..recently ...otl is suppose to be agoodn from my sources...anyway may be afluke but i've landed all 3 up...

i expect next week index to rise again to @ near highs...interesting what
happens..cheers

 

[seaurchin]

Re: 8-9% rise in XJO index can this be overbought ?

after selling my shorts XJO 4250 last time when index was near 4312...I now wonder today as we have fallen to 4235 abouts ...what should we do ??
1...get on board with bears and pay the 20-30% more or as soon as we have an up day the premiums will come back abit..cheaper and we still think our direction down is in place...

2...buy calls instead of puts...they look cheap today?but in aweeks time we may get cheaper than this???

what do we do here ....its a tough Question.....oh by the way as it turned out ANZ july puts would have been a profit insted of taking a loss...bugger
I thought that into july its too close to over and I red someone here said VOLATILITY DUMP...think it was Bundy?actually .
well it looks i made the right direction decision ...ANZ down to my target but guessed the option valued would decrease earlier ...it did not.

i'll be buying soon ...but waiting for direction confirmed and possibly pay the
higer price ...may be...sept xjo puts..or may be decxjo calls?