As I was saying this morning, I placed an order before going to work for a Apr09 11/10 strangle on General Electric (GE). My limit was at \$1.31 (total) but the morning mark started at \$1.37 and kept creeping up. I waited until 10 am and GE slowly gained in price. It stayed above \$11 shortly and so I checked the strangle price on the 12/11 instead. It was about \$1.40 too. So I just changed my order from 11/10 to 12/11 and upped my limit to meet the mid spread.
The risk profile for 12/11 is definitely different than 11/10. 11/10 would have been a good neutral position because GE is obviously congested around the \$10.xx range. The 12/11 range is more short-heavy because GE was only around \$11.07 when I entered. It's at the top of a trading range. However, I took it anyway because I'm actually leaning to the short side, in case you haven't noticed...
As you can see from Figure 1, daily on left and weekly on right, \$10.5 is a major long term pivot point. We are testing it at the moment on weak volumn. Figure 2 shows the hourly on left and daily on right. As I was saying this morning, GE's rally in March looks weaker as compared to S&P 500. The 10d MA haven't even crossed the 40d MA yet. Add to that, last time the indicators were at this almost overbought level was last year in the \$15 range. You can see what happened to that afterward. GE skidded down to \$6.
However, we have broken that long term downtrend, see Figure 3. And we're forming a long flag. This is definitely a glaringly bullish sign. After all, we can't keep using the same channel forever.
Rather long or short, the important point is that GE is at a major junction right now. Although I'm favouring the short side, but from observing the action of the market in the past few days, there's also a good chance GE will get lifted along with the rest of the market soon. That's why I've put on a strangle to take advantage of both the long and the short prospects.
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