10:30pm (EST)

Timing is everything.

Man, this market is fast moving and exciting isn’t it?  Good news, bad news, earnings hits and dips, jumpy oil and dollar currency movement.  Bernie has cancer (or not) and now Stanford has a “rapid” heartbeat.  Bernanke gets to run the show for a few more years and our nation’s deficit continues to hit new highs.  Oh, and healthcare.  Not to mention the historic nature of the market in September and October…which is when 3Q earnings hit.  Have I left anything out?  Yeap…Japan’s unemployment rate hits record highs.

Yet, we keep going higher.

This market has got a lot of moving parts and all of this means exactly what I’ve been saying.  Get ready for the volatility.  If American International Group (AIG, $47.84, up $10.15) can make a move from $12 to $50 in a month then I can’t wait to see what is around the corner for other stocks.

The volatility has added some extra spice to our trading and our risk only gets higher as we head out into the storm folks.  It remains to be seen if it is the Perfect Storm or Smooth Sailing but as traders we can be prepared.  It also means we are just missing some good entry and exit points on some of our trades.

For example, when I was doing today’s blog I was watching DryShips (DRYS, $6.24, up $0.55) as it was trading at $5.65 and was thinking, “cool, I need to look at some longer-term call options” because in Sunday night’s Weekly Wrap I had this to say about DryShips and the Baltic Dry Index:

“I’m not ready to jump back into any option trades just yet on DryShips but it does get interesting when the stock dips below $6.”

Next thing you know the stock is up 10% from noon to 1pm today.

The September 6 calls (OOCIF, $0.58, up $0.38) soared from an open of 25 cents and traded to a low of 15 cents before hitting 60 cents.  When I said timing is everything it meant exactly this.

DryShips popped on news that one of China’s dry bulk companies reported a smaller-than-expected loss for the quarter.  They also said “operational conditions for the second half of the year will remain difficult.”  Still, 26,000 call options traded on the September 6’s today.

Watch these call options on Friday..they may be good for a day trade if the trend is higher but make sure you confirm the trend.  That means watch the opening bell at 9:30am, especially the first 20-30 minutes of trading and see if the stock pulls back.  If not, and the trend looks higher you may be catch DryShips trading up to $6.50 or even $7.  If so, there may be an opportunity to put a little money in your pocket.

These stocks that are trading between $5 and $20 are seeing some tremendous moves which is rare for low priced stocks.  Then again, many “blue-chip” companies like AIG and Citigroup (C, $5.05, up $0.42) haven’t been this low in decades.

Yeah, Citigroup did us dirty.  We had a stop of 21 cents for the January 7.50 calls (CAQ, $0.30, up $0.10) which traded to a low of 20 cents yesterday.  As fate would have it (or my wallet), our stop was a penny or two off from keeping us in the trade but remember we already made a huge 114% return when we sold half of the position at 30 cents.

I’ve been telling you that I like Citigroup two years out and some of you may not want to make a fast buck which is my strategy most of the time.  However, I still like these options although they are not “officially” listed in our trade section anymore.

You have to remember this as well and I hate to sound like a broken record.  If you make a $1,000 in a day or two on a solid trade and you want to risk $500 of that on trades like Citigroup and Imax (IMAX, $9.39, down $0.02) and hold them through this volatility then it is cool.  That way if you know you made a $1,000 or $2,000 or even $4,000 with AIG this morning then you can afford to take some of the riskier trades I put on.

I’m trying to trim our exposure because I don’t like holding a lot of positions open over holiday weekends.  We do still have a few longer-term trades on but the money is moving really fast out there.  If it keeps up I may have to start doing updates every two hours…

I’ll be back in the AM with a fresh morning outlook.

Rick@MomentumOptionsTrading.com