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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: Henry J Costanzo who wrote (129019)	2/3/2006 5:27:07 PM
From: Win-Lose-Draw	Respond to of 209892

Just for the sake of weekend discussion...the DELL wedge and options... DELL's actual volty (daily trading ranges can be used as proxy) has risen dramatically (nearly 100%) since it turned downwards. Similarly, the implied volatility being baked into options prices has also increased dramatically. Betting on DELL to bounce here can be thought of in traditional terms - as a bullish bet on stock price - or it can be thought of as a bet against increased volatility - if DELL mean-reverts significantly, both historical and implied volatility get sucked back down. Ok, so a rose by any other name. Well, not really, if you trade options. If you view it as a bet on price, you can buy some OTM calls in sociable quantities, and Bob's yer uncle. But if you view it as a volatility bet, your options get a lot wider. Instead of buying for the upside, you can sell against the downside (with spreads, please, never naked!), you can buy/sell butterflies, start thinking in terms of calendar spreads, etc etc etc. All these plays allow to more precisely bet on the unstated thing you actually care about - volatility. And, they can get theta burn - time - on your side, instead of working against you. Ok, off my soapbox.

To: Henry J Costanzo who wrote (129019)	2/3/2006 6:07:40 PM
From: Shack	Read Replies (2) \| Respond to of 209892

I think you make some good points. Larger degree wedges often dick around forever at the lows, the lower-risk play is to wait for the upside wedge break. The overthrow on the AA wedge for instance lasted a month before it regained the wedge, options would have died a slow death. The length of time was, as you implied, due to the stock coming out of a multi-year downtrend....interestingly within a larger multi-year uptrend/Jell-O. It really depends on the degree in which one is trading. In the case of UTX I view the wedge as a weak wiggle corrective counter-trend pattern within a very strong uptrend which I think could resolve to the upside in a matter of trading hours not days, even if the upmove (should it ever come of course) is slow by your standards. And given the uptrend there I think new highs are the likely scenario. I wouldn't touch the DELL wedge until the first move, the subsequent correction and only then would I think the action would be quick enough to warrant an option play. It actually took me years to figure this little "secret" out, I would always have the right read but made no money!