Buy Back or not?

This is a discovery process. My last year option trading (selling covered calls on ETFs) was a big experiment for me. It went quite well with the market in the uptrend.

The question for this year remains: how the market would finish 2013?

I think that the main market influencer is the easy money policy. Everything else, sequestration, Europe, is just noise that we need to watch but filter out for trading.

The current market pullback (yes, for now it is just a pullback) may last for a bit longer.

MDY Weekly Chart

And daily MDY chart

MDY Daily Chart

The most recent run-up continued from September 2011 (this area seems to be a solid support based on number of tests and volume) -- see other ETFs like SPY etc. This recent run-up has not been tested until now.

MDY -- I see a high probability pullback toward the area of $180 - $188 (see the weekly chart above). This finding is confirmed on the daily chart (see the daily chart).

XME looks very weak with increasing probability of testing $37.

QQQ -- awaiting retest of $64 - $65.

Enough said. So what do I do with my process of selling covered calls? After the most recent, February, options expiration, when many of my ITM positions were called (good for me!) I did not reinvest that cash. In my recent blog I wrote about extremely low returns on selling calls on MDY. I took a note of that as a warning sign. I am, for now, until proven otherwise, place this warning in my "permanent trading indicators" tool box.

As far as the existing remaining positions, that were not called: some QQQ and XME, I already bought back the march calls -- the ones that went below $0.05.

I am not going to liquidate these positions -- under the trading assumption that this is a pullback and I will wait for good entries to sell more calls against them.

Please remember: I am writing about probabilities -- nothing is ever certain!

Eva