Sun Tzu and The Art of War for Traders (Video)

Scientists find physical clutter negatively affects your ability to focus, process information

Scientists find physical clutter negatively affects your ability to focus, process information | Unclutterer


very interesting and directly applies to trading.... going to clean my desk now....


"When your environment is cluttered, the chaos restricts your ability to focus. The clutter also limits your brain’s ability to process information. Clutter makes you distracted and unable to process information as well as you do in an uncluttered, organized, and serene environment."

Trade of the Day: C June 5.5/6 bull vertical

The Trade
Today, a trader bought 125,000 June 5.5 calls @ 0.16 and sold 125,000 June 6 calls @ .07 for a net debit of .09 or $1,125,000.

Risk/Reward

As you can see from the risk/reward graph above, the bull vertical has limited risk and limited profit potential. The maximum loss for this spread is the debit. The max profit for this bull vertical would be $5,125,000. The break even price level in the underlying stock is 5.59, which is the long call strike plus the debit.

Citigroup's 52-week high is $5.15. Therefore, for this bull vertical to be profitable, Citigroup would have to make new highs. I would describe the buyer of this spread to be very ambitious because as we can see from the chart above, the $5 level has proven to be a strong resistance level. It is important to remember that most mutual funds cannot own stocks under $5. Therefore, if C can hold above $5 for a week or more, mutual funds might take long term positions in the name.

Alternative Trade

The June 5-6-7 long butterfly for a debit of 0.18 (taking liquidity at the close today).

As you can see, this trade breaks even between $5.15 and $6.85. Although the debit is twice as much as the "Trade of the Day" the break even is .44 lower. The butterfly is also short vega, theta, and gamma. If C does move to $6 being short vega and theta will most likely be a positive. The down side to the the butterfly is the short gamma but only if C runs quickly though $7 without looking back. The butterfly should therefore be unwound when C is trading at or near $6.

Feel free to comment if you have any questions.