The TVIX mirrors a 200% move in the VXX. These two ETN’s can be incredibly lucrative trading vehicles if traded properly. There is a very important difference between an ETN and an ETF. An ETN is an “Exchanged Traded Note”, which contains investment products issued by a bank or institution. An ETF is an “Exchange Traded Fund” and contains actual securities. ETN’s use futures, derivatives and options to mirror their underlying instruments. One of the two most important factors that an investor or trader needs to be aware of is backwardation and contango. When the VXX is in backwardation that means that spot prices exceed forward prices and in contango forward prices exceed spot prices. When you get big run ups in volatility, curves get skewed towards backwardation which is exactly what happened from August to October in 2011. The VXX was up over 150%. When the premiums for put protection came down, the VXX cratered and went from $50 to $27. Meanwhile during this time period, the Inverse Volatility (XIV) ETN has rallied over 90%. Think of normal market conditions as equilibrium between where the backwardation and contango curves intersect. As outliers occur, such as the August crash, this equilibrium gets stretched. This is where the most money is to be made. A $55 high on the VXX on October 3, 2011 was made when the ^Vix hit $45 that day. Only once in history has the ^Vix hit $45 and been higher two months later. The only time was in 2008 when the ^Vix ran to $90. “I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.” – Paul Tudor Jones.

Reason I like this Trade: I looked at the amount of movement that LNKD has moved and the stock has not moved over 5.5% once over the last 4 quarters.  I think that the stock should sell-off as GRPN trades lower and a sell-off in MWW for earnings.  If the stock breaks the 100 Day Moving Average at $80 then I want to be out of this trade, so I bought the 85 Calls and MY stop and I will leave this trade on all day tomorrow.

Date      PreEarn PostEarn     Change

11/04/11   $87.50   $82.37  $-5.13 (-5.9%)
08/05/11   $95.52   $91.36  $-4.16 (-4.4%)
Average Magnitude of Post Earnings Return 5.1%

UPDATE: 2.10.2012 With LNKD ripping more than expected, I am short LNKD at $80, but I stopped out at $85.  I will leave this trade on and hope the stock sells off to $83, so my losses are not as much.  This trade has not been a winner, but I still have time left to hope this works out.  On to the next trade

UPDATE 2.11.2012 This spread expired worth the maximum it could be worth, $5.  I was stopped out at $5, I risked $3.50 to make $1.50 and I thought it was a great risk vs reward, so yes sometimes I do lose money so on to the next trade.   

Read more about february by keeneonthemarket.com

In other news, we see AAPL raging to the upside by $17 and approaching 500$ level shortly. Analysts price targets have all risen and ipad 3 should be a positive growth driver. I think this AAPL momentum to the upside is proven and you cant making money shorting APPL. Somtimes the best trade is no trade.

We have not seen any unusual option activity today but we have seen a huge volume Feb 35 Call buyer of EXPE. We have seen EXPE rally more then 2.5% to the upside. However, with poor results from TRIP this call buyer could be selling stock against its Calls creating a straddle. I will put on a EXPE position minutes before the closing bell. More unusual options activity we have seen is call buyers in solar names such as JASO,SOL, TSL. KOTM took profits on the calls they were long and we are currently flat solar stocks

After the Bell on Wed:
Cisco(Csco)-had a huge qtr, q2 eps .47 vs.43 est.  11.5b vs 11.2B q2 revs estimate. Cloud computing will definitely be a growth driver in 2012.   Trading up 3% after hours.Wmfi- great report. Priced to perfection IMO. Beat bottomline by .05 cents, beat top line, and increased guidance.. street loves it,good forward looking guidance.Diamond foods down 35% afer in the extended hours do to bad accounting practices.

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It is all about stock picking in 2012 instead of being long/short the overall market when all asset classes were rising and falling in tandem. In 2011, the markets could not rally without the banks. In 2012, this has not been the case as the banking sector has been one of the best performers. Bank of America (BAC) is up over 40% since January 1st. It closed up 3.44% to $8.12 today. It found resistance at $8.15 in afternoon trading which is the R3 pivot point and a few cents away from the 200-dma at $8.18. Citigroup (C) also traded higher today and closed up 3.51% to $34.23. Citigroup, Wells Fargo, AIG, Goldman Sachs and U.S. Bank are all trading above their 200-dma’s. Bruce Berkowitz also came out today and described his “value” thesis for Bank of America. This could have helped the move today in BAC. Euro finance ministers are meeting in Brussels tomorrow to discuses an emergency rescue plan for Greece. I think much of this negative information is already priced in and the market is disregarding it. Spot Gold closed down -0.68% to $1733.62, Crude closed up +0.57% to $98.97 and Silver closed down -0.50% to $33.97.

Reason I like this Trade: I looked at the amount of movement that Whole Foods has had over the last 4 quarters and it has been very tight.  Here is a performance of how much the stock has moved the next day after earnings.

11/03/11   $70.56   $69.15  $-1.41 (-2.0%)
07/28/11   $65.43   $67.14  $+1.71 (2.6%)
Average Magnitude of Post Earnings Return 2.3%

The volatility is exploding and I think this is a great risk vs reward trade that I can’t pass on.  

UPDATE 2.9.2012 This trade looked a lot better last night when the stock was trading $77.50. The stock is currently trading $79.70. Looking to take off a partial position for $1.50. The more the stock sells off the more profitable. Stay tuned for more updates.

UPDATE 2.10.2012 I sold this spread for $2 and it is currently worth $1.90, I am looking to take it off for a profit, because the more the stock rallies and closer to expiration the less profitable this trade will be.  

UPDATE 2.13.2012 With the stock market rallying and Whole Foods selling off, I am trying to get out of this trade.  It is currently worth about $1.80, so it is a small winner, but I would like to take the trade off and move on.

UPDATE 2.14.2012 I TOOK 1/5 of my position off at $1.88.  I am looking to take the rest off, because this position is long front month premium that would expire on Friday worthless.

UPDATE 2.16.2012 Yesterday I sold the February 80-77.5 Put Spread for $.50 and today I bought my short Feb 75 Puts for $.01, so this trade was a small loser, on to the next trade.  

Read more about february by keeneonthemarket.com