CNBC adds mentor Dan Sheridan to OPTIONS ACTION program Dec. 30

Dan Sheridan, options mentor, makes his first appearance on CNBC's OPTIONS ACTION this Friday, December 30, 2011.

SHOW TIMES

• Fridays, 5p ET
• Saturday, 6a ET
• Sunday, 6a ET

Set your DVR.

More about Dan and his mentoring program.

Commercial net short drops 12% in todays' COT

We're speaking of gold futures. The last time commercials so lightened up on their short hedges (end of September), gold bulked up about 150 molto pronto in the subsequent weeks. This is not an ironclad promise the yellow metal will repeat the performance right here, right now, and there are distinct deflationary pressures weighing on gold just now, but we find this indicator to be meaningful, and a year-end spurt in gold would be much in character with the perverse nature of the markets, i.e. a rally now that all the guru's (Gartmann et al) have said the "bull is dead," "I've sold all my gold," etc. etc. etc.

(See earlier posts here.)

Speaking of gold, that's what the three kings brought the young and future King, gold, incense and myrrh. Read about the significance of these gifts.

Merry Christmas to all our readers.

GOLD	COT REPORT	COMMERCIALS NET SHORT
1605.00	12/23/11	164,554
1597.50	12/16/11	186,217
1715.00	12/9/11	201,500
1745.30	12/2/11	193,545
1688.50	11/25/11	192,413
1719.00	11/18/11	204,163
1773.00	11/11/11	196,935
1749.00	11/4/11	182,400
1744.40	10/28/11	168,114
1638.70	10/21/11	159,153
1680.00	10/14/11	168,478
1652.00	10/7/11	164,751
1624.80	9/30/11	166,683
1647.00	9/23/11	197,628
1809.60	9/16/11	210,468
1859.40	9/9/11	227,714
1881.90	9/2/11	217,355
1813.70	8/26/11	230,436

Working on two features for trade press

One condor trader, one calendar, completely different approaches, both successful. More on these later....

Pfizer: An Option-Enhanced Approach

We have just contributed our first feature to Seeking Alpha:

http://seekingalpha.com/article/310892-pfizer-an-option-enhanced-approach

We invite you to give it a look.

Score one for our COT Tracker: Option Wizard® Trading Method Gold

In our last post, we said:

Short term? OPTION WIZARD TRADING METHOD GOLD is signaling that a short term bottom might be in via a precipitous drop to below 200,000 contracts in commercial net short positions as follows. See below)


Gold was $1624 when we wrote those words. The situation didn't feel bullish, it felt more like everything was going to fall off a cliff, Europe, metals, stocks, bonds.

Le Grande Implosion seemed to be at hand.

Nevertheless, the hard, cold numbers of Option Wizard® Trading Method Gold won the day. Here we were, not even 30 days later, as of Friday, Oct. 28 close: $1,743.40, when these words were written (the market has since backed off).

Plus 7.2%, one month (or so) gain.

Maybe Ms. Gisele Bündchen has changed her payment preferences since her last and famous pronouncement?

Krugerrands.....Maple Leafs anyone....? Gisele, please write, tell me what you're thinking....

Next for gold

As little as four years ago, there was no financial hand-wringing surrounding Europe. World financial angst was concentrated on the U.S. dollar. Remember when supermodels demanded to be paid not in dollars, but in Euros? Seems like prehistory now....

Now it seems the whole world is watching the Euro's weakest link, Greece. When, not if, it defaults, will it take down Euro banks, governments....? When they fall into the Atlantic, will the ensuing tsunami submerge our own shores...?

Which financial phenomenon will play the role of Grim Financial Reaper, Deflation or Inflation? Or will we continue to soldier on, wobble on, in the uneasy equilibrium beyond these two cosmic forces?

And what of gold?

Of the long term, we confess we don't know, save for the famous words of one noted economist, that in the long term, we'll all dead (fairly obvious, but J. M. Keynes surely got a lot of quotes out of it.)

Short term? OPTION WIZARD TRADING METHOD GOLD is signaling that a short term bottom might be in via a precipitous drop to below 200,000 contracts in commercial net short positions as follows.

Gold	Change	Date	COMMERCIALS NET SHORT
1624.80	-22.20	9/30/11	166,683
1647.00	-162.60	9/23/11	197,628
1809.60	-49.80	9/16/11	210,468
1859.40	-22.50	9/9/11	227,714
1881.90	68.20	9/2/11	217,355
1813.70	-32.70	8/26/11	230,436
1846.40	101.20	8/19/11	248,847
1745.20	86.90	8/12/11	249,206
1658.30	33.40	8/5/11	287,634
1624.90	22.50	7/29/11	282,973
1602.40	8.30	7/22/11	263,814
1594.10	50.10	7/15/11	244,249
1544.00	57.70	7/8/11	202,002
1486.30	-13.30	7/1/11	208,755
1499.60	-37.90	6/24/11	251,247
1537.50	5.00	6/17/11	237,429
1532.50	-9.80	6/10/11	247,684
1542.30	6.80	6/3/11	240,508
1535.50	22.00	5/27/11	217,237
1513.50	19.80	5/20/11	206,949
1493.70	1.00	5/13/11	221,581
1492.70	-73.00	5/6/11	240,102
1565.70	60.70	4/29/11	248,994
1505.00	18.60	4/22/11	266,548

It may be instructive to look at what happened the last time commercial net short's declined to this level.

Gold	Change	Date	COMMERCIALS NET SHORT
1486.40	11.50	4/15/11	253,688
1474.90	46.30	4/8/11	258,665
1428.60	-1.60	4/1/11	240,769
1430.20	10.50	3/25/11	224,799
1419.70	0.20	3/18/11	220,154
1419.50	-10.00	3/11/11	247,464
1429.50	20.90	3/4/11	250,596
1408.60	19.50	2/25/11	231,806
1389.10	33.20	2/18/11	218,626
1355.90	7.00	2/11/11	209,911
1348.90	11.00	2/4/11	193,197
1337.90	-4.00	1/28/11	197,483

About $150 to the plus for gold, from January to April.

However, having pointed these situations out:

Could gold revisit its recent low? Could it move sideways for an extended time? Yes, and yes. Could it make new low's? Yes, again. With Europe primed and awaiting crisis, anything and everything is possible. But the commercials (producers) tend to have the best handle on the market, and this indicator tends to work over time.

That it doesn't "feel right" after the recent drubbing the shiny metal has taken is perhaps another powerful endorsement. That some of the gold miners turned up or acted firm Friday, when gold itself was struggling, is another positive. Historically, miners have tended to lead the actual metal....

October SFO magazine will include our review of new Excel for options book

Our review of Microsoft Excel for Stock and Option Traders: Build Your Own Analytical Tools for Higher Returns by Jeff Augen is slated for October SFO magazine. (Free subscription)

OWSOSB straddle: + 29% 13 days

Credit: Option Wizard® Simplified Options Strategy (SOS) Backtester.

7/19/2011 11:06:54 BOT SPY 100 AUG 11 133 PUT @3.25 NASDAQ
7/19/2011 11:17:19 BOT SPY 100 AUG 11 133 CALL @1.96 CBOE
8/1/2011 13:00:23 SOLD STRADDLE SPY 100 AUG 11 133 CALL/PUT @6.20

Potential for snapback rally if D.C. avoids ritual suicide....I'm thinking they will....we'll see, in any case, it is the right thing to do and the right time to exit....

SPY from 135 handle to 131 in a heartbeat

Starting from June 28, overbought situation in SPY as "described" by new Option Wizard® Simplified Options Strategy (SOS) Backtester.

The "red lights" were "on":

94	22	286	Tue-28-Jun-11	129.61
96	41	314	Wed-29-Jun-11	130.72
96	66	352	Thu-30-Jun-11	131.97
98	90	432	Fri-1-Jul-11	133.92
95	97	479	Tue-5-Jul-11	133.81
96	97	481	Wed-6-Jul-11	133.97
93	97	478	Thu-7-Jul-11	135.36
67	93	449	Fri-8-Jul-11	134.4
8	81	359	Mon-11-Jul-11	131.97

Backtesting Options Strategies

Our feature appears in July issue, TECHNICAL ANALYSIS OF STOCKS AND COMMODITIES. Page 38-41. Available at newsstands or traders.com.

When men weep and gnash their teeth: The Next Financial Crisis Will Be Hellish And It’s On Its Way

According to author Addison Wiggin, we haven't solved a thing (or learned a thing).

e.g. 51:1 leverage at the Fed. A 2% move wipes out our Central Bank.

Forbes via 321gold.com. Invite you to read and ponder......

Feature slated: "Sample Variance" for options backtesting

Our feature "Sample Variance" will appear in the July 2011 issue of Technical Analysis of Stocks and Commodities. It covers how to use this approach to quickly and easily backtest options strategies, as does our newest product, Option Wizard® Simplified Options Strategy (SOS) Backtester.

Option Wizard® Simplified Options Strategy (SOS) Backtester shows that despite earthquakes, tsunami's and nuclear catastrophes, probabilities prevail

On Wed. March 16, 2011, we used the new Option Wizard® Simplified Options Strategy (SOS) Backtester to determine some expiration probabilities for SPY.

Previous close: SPY 128.56 Tues Mar 15, 2011

THE PROBABILITIES FOR SPY CLOSE 2 DAYS LATER:

136	0.79%
134	1.97%
132	6.71%
130	22.11%
128	54.64%
126	11.69%
124	4.11%
122	1.66%
120	0.95%
118	0.63%

So where did it close, Friday, March 18, 2011 -- options expiration?

127.76

Very near our highest probability 128, which Option Wizard® put at 54% probability. Doesn't mean SPY couldn't have closed at 136 or 118, it could have. Theoretically. But where should we put our confidence? Where should we place our positions.

Btw, I mentioned this exercise to a colleague as I was doing it. He is a financial engineer, Chicago firm, fan of fat tails, black swans, and N. Taleb. He scoffed. I understood, he had/has a point.

Still, even in a week (a prior month) of

• Big moves, bull & bear
• Aftermath: Earthquake, 5th worst
• Aftermath: Tsunami
• Ongoing and raging and worsening nuclear catastrophe

It is perhaps nothing short of amazing that plain, vanilla probabilities --prevailed.

OWTM Gold signal update -- still climbing....

1429.50	3/4/11
1408.60	2/25/11
1389.10	2/18/11
1355.90	2/11/11
1348.90	2/4/11
1337.90	1/28/11
1341.90	1/21/11

Signal update: gold (good), SPX (too early)

Since our Jan. 21, 2011 call, looking for a near-term bottom in gold, and based on our program Option Wizard® Trading Method Gold, after a rather slight $4 more to the downside, we have been some $48 to the good on gold:

1389.10	2/18/11
1355.90	2/11/11
1348.90	2/4/11
1337.90	1/28/11
1341.90	1/21/11

On Jan. 7, 2011 we posed the question: is the SPX running out of steam?

7-Jan-11

1,271.50

-2.35

-0.18%

Now we have our answer: no...at least, not yet. (1343.01, close, Friday, February 18, 2011.) And the way things are going, we could as easily pose the question, will the market ever go down again? We think we know the answer to that one: a) eventually and b) when you least expect it and c) when everyone is "all in." Again, stay tuned. We will be.

New: two-click options strategy backtesting

Say you're interested to initiate a condor or calendar or butterfly on, let's say, the RUT (Russell 2000), but you'd really like to know how many times it has moved more than, say, 6%, in say, 20 days, over the last 5 years.

And how does that compare to the SPX or SPY --- or the DIA, or QQQQs? Which trade is best -- in terms of "variance?" Actual market movement?

Now, you can find out in seconds via the new Option Wizard® Simplified Options Strategy (SOS) Backtester.

This will be of special interest to those among the options community who have spent hundreds of hours (literally) clicking through data, day-by-day, in other programs -- and we know there are legions of you other there (and we have been among you).

We use sample variance, and the (still amazing) power of Microsoft Excel and Visual Basic.

More info...

Gold nearing a bottom?

This indicator is not foolproof, just one of many indicators. Still, over time, the big commercials have an excellent track record. At high net shorts, the market is poised to decline; at relatively lower net shorts, the market is poised to bottom, and perhaps rise.

For your consideration, (you can purchase the full file from the OW store):

		COMMERCIALS NET SHORT
1341.90	1/21/11	206,471
1359.10	1/14/11	225,064
1369.60	1/7/11	254,582
1421.20	12/31/10	259,770
1384.00	12/24/10	251,808
1375.50	12/17/10	268,135
1387.10	12/10/10	278,673
1408.50	12/3/10	270,469
1364.00	11/26/10	263,893
1352.20	11/19/10	264,908
1368.40	11/12/10	290,953
1394.20	11/5/10	276,612
1358.10	10/29/10	282,435
1327.70	10/22/10	293,082
1366.90	10/15/10	300,022
1345.90	10/8/10	299,498
1317.40	10/1/10	302,740
1297.00	9/24/10	292,308
1274.30	9/17/10	292,939
1246.70	9/10/10	287,680
1247.70	9/3/10	284,561
1235.90	8/27/10	264,300
1227.50	8/20/10	249,570
1215.40	8/13/10	230,980
1207.75	8/6/10	222,029
1182.10	7/30/10	227,555
1188.30	7/23/10	215,664
1190.80	7/16/10	248,348
1209.60	7/9/10	249,142
1211.70	7/2/10	289,956
1254.40	6/25/10	288,916
1257.00	6/18/10	278,944
1226.90	6/11/10	273,577
1217.40	6/4/10	267,623
1216.00	5/28/10	268,379
1177.00	5/21/10	279,744
1234.80	5/14/10	282,644
1209.20	5/7/10	271,586
1178.30	4/30/10	265,522
1155.20	4/23/10	257,396
1135.50	4/16/10	263,484
1161.00	4/9/10	244,906
1127.00	4/2/10	207,691
1107.80	3/26/10	223,823
1106.60	3/19/10	242,295
1102.60	3/12/10	251,787
1132.00	3/5/10	251,537
1116.70	2/26/10	238,044
1117.70	2/19/10	219,878
1091.20	2/12/10	213,427
1065.30	2/5/10	244,579
1080.60	1/29/10	248,618
1092.30	1/22/10	273,647
1130.40	1/15/10	282,488
1136.60	1/8/10	278,551
1095.00	1/1/10	278,942
1104.50	12/25/09	285,665
1112.50	12/18/09	303,791
1115.00	12/11/09	299,186
1161.40	12/4/09	308,231
1166.50	11/27/09	306,104
1150.10	11/20/09	281,546
1118.50	11/13/09	282,784
1097.00	11/6/09	283,852

Scan Wizard™ poses the question: is the SPX rally losing steam?

The SPX has pressed mightily ahead since Dec. 1. When the optimized slow Force Index (here still positive 3.7 million) turns negative, Scan Wizard™ will go short. Are we close? Another potential warning sign is the unusually low volatility, at least for recent years, which Scan Wizard™ measures at 13.3% (100 DMA).

Our feeling is with the slow turn in employment, improvement in corporate profits, etc. the retreat may be only a classic 5% to 10% bull market correction, but that's still 60 to 120 points. Could we go back to 1210, or even 1150? So far the bull has mightily resisted any effort to rein him in. Stay tuned, meanwhile, we invite your free Scan Wizard™ trial.

Time	Last	Change	% Change	Slow Force(12)	L/S Force	P/L
7-Jan-11	1,271.50	-2.35	-0.18%	3,712,409,367	-	-
6-Jan-11	1,273.85	-2.71	-0.21%	6,480,216,769	-	-
5-Jan-11	1,276.56	6.36	0.50%	11,961,571,555	-	-
4-Jan-11	1,270.20	-1.67	-0.13%	6,821,729,210	-	-
3-Jan-11	1,271.87	14.23	1.13%	15,948,844,587	-	-
31-Dec-10	1,257.64	-0.24	-0.02%	4,028,670,501	-	-
30-Dec-10	1,257.88	-1.9	-0.15%	4,142,333,174	-	-
29-Dec-10	1,259.78	1.27	0.10%	4,994,736,185	-	-
28-Dec-10	1,258.51	0.97	0.08%	7,316,390,020	-	-
27-Dec-10	1,257.54	0.77	0.06%	8,690,868,649	-	-
23-Dec-10	1,256.77	-2.07	-0.16%	9,606,399,685	-	-
22-Dec-10	1,258.84	4.24	0.34%	11,227,631,560	-	-
21-Dec-10	1,254.60	7.52	0.60%	12,109,166,162	-	-
20-Dec-10	1,247.08	3.17	0.25%	9,774,479,404	-	-
17-Dec-10	1,243.91	1.04	0.08%	14,249,844,586	-	-
16-Dec-10	1,242.87	7.64	0.62%	25,362,403,019	-	-
15-Dec-10	1,235.23	-6.36	-0.51%	14,886,418,601	-	-
14-Dec-10	1,241.59	1.13	0.09%	19,292,469,457	-	-
13-Dec-10	1,240.46	0.06	0.00%	17,465,106,521	-	-
10-Dec-10	1,240.40	7.4	0.60%	24,782,592,298	-	-
9-Dec-10	1,233.00	4.72	0.38%	15,784,798,546	-	-
8-Dec-10	1,228.28	4.53	0.37%	13,582,022,169	-	-
7-Dec-10	1,223.75	0.63	0.05%	11,467,704,151	-	-
6-Dec-10	1,223.12	-1.59	-0.13%	16,779,695,900	-	-
3-Dec-10	1,224.71	3.18	0.26%	18,740,053,058	-	-
2-Dec-10	1,221.53	15.46	1.28%	15,660,536,203	-	-
1-Dec-10	1,206.07	25.52	2.16%	12,667,703,010	LONG	65.43
30-Nov-10	1,180.55	-7.21	-0.61%	-13,057,740,116	-	-
29-Nov-10	1,187.76	-1.64	-0.14%	-10,178,049,070	-	-
26-Nov-10	1,189.40	-8.95	-0.75%	-8,569,272,688	-	-
24-Nov-10	1,198.35	17.62	1.49%	-4,940,900,931	-	-
23-Nov-10	1,180.73	-17.11	-1.43%	-21,140,261,108	-	-
22-Nov-10	1,197.84	-1.89	-0.16%	-8,363,546,215	SHORT	-8.23