It's all over the news. The house has been placing their bets on next Tuesday's FOMC decision. Betting heavily that the Fed will lower the Federal Funds rate. Or at least, they made it look like they are betting that way. However, the DOW has come to its' previous lower high, nearing 13500. A potential double top is possible if the market does not go significantly higher.

During the past two days, the options prices has been ridiculously high for the underlying that tracks the indexes such as DIA (which tracks the DOW 30), making no room for errors. It makes trading especially hard for amateur traders that have yet to gain full confidence in trading options for indexes. But then again, the volatility of the indexes has been causing extremely pricy contracts on several occasions throughout this Summer.

A $70 strike put option that cost $1.50 for the underlying NYX bought on the 28th of August almost doubled its' value today ($2.90) when NYX hit a day's low of $68. NYX has since rebounded sharply and went as high as $71 before easing back into pennies below $70 at closing leaving the option price last traded at $1.90. But the point is, time decay usually do not melt away that much premium off of the value of the option. Even though the price of NYX has been consistently lowered, the price of the option has only appreciated marginally.  

Trend Trading

ALY (Allis-chalmers Energy) has been on an uptrend since 2005. I recently caught it lying dormant and traded very closely to its' long term up-trend line. Since it is not a volatile stock that stretches its' muscles everyday, I went all conservative and bought in-the-money calls for April 2008, which is the longest option available.

CHK (Chesapeake Energy) seems to be a shortable candidate trading at its' new lower-high at nickels below $35. The pricing and available options expiration dates of this underlying is by far more favorable than the previous one. However, there should be a tight stop loss for this one because technically, it is not showing as much bearish signals.

Last but not least, I have been waiting for COH (Coach Inc.) to dive into the low 40's and it has. And it has now left it's long-term up-trend line trading in the high 40's. Should there be any retracements at all (i.e. comes down to the center of the bollinger band or better known as the 20 days moving average), it will be another buy opportunity.