Option Investor
New Plays

New Plays

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DJX -$107.17 Dow Jones Industrial Average

We were triggered on the first entry when the Dow spiked past 10900 on Tuesday but failed to fill at the next 10950 trigger point. Following the plan we added to the position with a touch of 10800 at 1:30 Tuesday afternoon. Other than the Dow spike not making it to 10950 the play went perfectly.

I like the way funds sold the rallies this week ahead of a potentially dangerous week ahead. It suggests to me that we are on the right track and this will be a profitable play.

If we did get a bounce back to 10800 I would consider adding to our position. I seriously doubt it will happen but I would take the entry personally if it happened.

This is probably too early to start talking about an exit point but I would gladly exit at Dow 10300. I believe we will find support in the 10200-10250 range and bottom feeders will probably start anticipating that support should 10300 break.

I am not going to set a stop yet because we could see an opening spike for the New Year before real weakness develops. I doubt it will happen but I don't want to be taken out if it does. Options are cheap so we don't have much at risk.

Original play description.

The Dow has struggled to touch 11000 for the last month and has failed to pass even the 10984 we saw back in March. It has found resistance to be strong and the clock is running out on 2005.

The analysts seem split on which will come first, 9,000 or 12,000. We really don't care because this play is strictly a timing play based on the historical January weakness of late.

We are going to use the DJX because options are cheap and there are plenty of strikes.

This is going to be a short-term play, probably less than 60 days. It will be target driven for both entry and exit. There will be no insurance but we will establish stops once in the position.

We are going to add to the position on any Dow gains through Jan-6th. Add one contract, two, ten or a dozen at each trigger point. It is up to you. Since we cannot know what the Dow will do we want to average cost ourselves into a put position at Dow 11000. If it only reaches 10950 we will only have 2/3 of our target position.

Breakout target: $109.00 (Dow 10900)
Bought March $108 Put DJV-OD @ $1.65 on 12/27

Breakout target: $109.50 (Dow 10950)
Cancelled - March $108 Put DJV-OD - not triggered

Breakout target: $110.00 (Dow 11000)
Cancelled - March $108 Put DJV-OD - not triggered

If the Dow hits 10900 but does not reach 10950 then add to your position on any breakdown to 10800. ** Added @ $1.90 ** 12/27

Average cost now $1.775


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