[caption id="attachment_642" align="aligncenter" width="500" caption="Wells Fargo"][/caption]
Wrote a put on Nov WFC strike 31 for \$3.60. Fee \$7.5 as usual for options. WFC tested the critical \$27 support level today with a gap down. The price gradually recovered with increasing volume. On the daily chart, the overarching trend is still up from the 200 dma. But there's some wild swings over the last few months, including the capitulation this week from \$35 to \$27. We have tested the \$27 level today with strong intraday action.
In particular, the S&P is holding on the 910-915 level. In particular, the 3:15pm test of 915 occurred at the all-day TICK low. Note the middle graph of the NYSE TICK, we bounced at 915 right when the TICK reached a new intraday low. This is a significant show of strength and it leads me to believe the retracement from the rally has ended. We'll probably be continuing the uptrend next week.
[caption id="attachment_644" align="aligncenter" width="500" caption="S&P intraday"][/caption]
Upside: As explained above, looks like a rally in the broad market. The financials should be winners since they dropped the most and this is a bear rally. WFC is a strong contender in the financials, so I picked it to ride this wave. Bought this mostly based on the technical analysis, the \$27 test looked good.
Resistance: \$31.3, top of the gap down open from yesterday.
Downside: Stock tanked in last 3 days, from \$35 to \$27.
Bottom line: I'm just choosing to ride the strongest bull I could find in an expected rally. I chose the 31 strike because of the gap down open (\$31.3 - \$31.0) yesterday. We should fill it if this were to go up. WFC was just below \$28 when I bought this, it has closed at \$29.50 on a multi-day 15 min high volume. This is a short term play only, I'll let it go when everyone else are smiling next week or two.
: http://traderpau.files.wordpress.com/2008/11/2008-11-07-wfc.png : http://traderpau.files.wordpress.com/2008/11/2008-11-07-spxintra.png