The markets opened lower today, but a rise in the price of Crude oil pushed us higher. The markets are only down slightly from their highs of the year. Todays action makes me think that future inflation expectations are taking precidence over fundamentals. We could push to a new high sometime in the near future, but I urge investors to use extreme caution here and hedge your buy and hold positions. For those who day trade, look to short on strength and buy on weakness. Spread trades are a good idea right now. A combination of longs/shorts could work now because between now and winter, the market should move significantly one way or the other. Going long a leap strangle or straddle with options may prove a good strategy.
Technical indicators remain bullish, for now. For those looking to position trade to the downside, PSAR is indicating a sell with a stop at 1,005 on the S&P. The moving averages do not support this, I will give a heads up when we get a cross over confirming a safer sell entry.
Wednesday, August 19, 2009
Tuesday, August 18, 2009
Update for August 18, 2009
The S&P gained back 9.94 today after yesterdays sell off. Trying to get a feel for where we are headed, I did some technical analysis. The moving averages are bullish, with the SMA 10 above the SMA 20 (but with bearish divergence), and the SMA 200 is below the 20, at about 875. Parabolic SAR is giving a sell signal. If you were to go short here, PSAR places the stop loss at about 1,010.
If the tone is positive tommorow morning, I will take profits on my put options and buy more shares of MCD, PEP, and MO. Otherwise, I will wait for better gains on these. I will let the short calls ride for now. I am watching a solar company called CSIQ. I will hold off on this, as I feel that the potential for a bigger pull back between now and Christmas is considerably good.
For the indexes, the daily charts are showing a potential top formation, but it is not confirmed. The monthly and yearly charts are showing that we recently broke out from a 1-2-3 bottom, or "inverse head and shoulders" formation. In the long run, the monthly and yearly charts are the way to play this. Short term traders need to watch the daily chart more closely.
Volitility was up big yesterday, but gave up half of those gains today. One way to play the volitility is with a credit iron condor spread. The goal of this trade is to be market neutral, and profit from credits on option spreads. You can do this with your stock account with options on the symbol SPY (an etf that tracks the S&P deposit receipts). You can also use SSO, SDS, SH, etc., but I prefer the massive liquidity of SPY for this play.
To put on a credit condor, you sell a call, and buy a call with a further from the money strike price. You also sell a put, and buy a put with a further from the money strike price. The result is that you receive a credit from both option spreads. Loss and profit are both limited by the differences in premium (limits profit) and the difference in strike price of the (calls) or (puts). The best time to put on a credit condor is when volitility has been up, an example would be the early to mid July time frame when volitility spiked, and then came back down as the rally resumed.
When choosing which strikes to use in your condors, your goal is NOT to have short options (the ones you sold) go "in the money." I also like to put on this spread with anywhere from 10 days to 4 weeks until expiration. This is not a long term play, you want the odds on your side that the market will not shoot past the strikes of the short options on either side.
The play I still recommend for everyone, especially until we know we are out of the woods (which I beleive we are far from it now), is to buy high quality stocks or covered calls on these good dividend "blue chips." If we get a rally this week, you can sell calls against your position for higher premium and either buy puts (set a 30% loss limit on these) or hold the premium collected to buy more shares on a pull back. If you invest/trade this way, you will win in the long run. Also, it is best to use leap calls and puts. Let's say the market goes higher. You would have unloaded your puts for a modest 30% loss. You can buy back your short calls and "roll" them out-that is sell a further out strike (which will now bring back enough premium to cover the difference from buying/selling the original option, plus a profit). You can keep rolling out your calls indefinitely.
As always, you can e-mail me with questions or comments at lmrtrader@gmail.com , I would love to hear from you!
If the tone is positive tommorow morning, I will take profits on my put options and buy more shares of MCD, PEP, and MO. Otherwise, I will wait for better gains on these. I will let the short calls ride for now. I am watching a solar company called CSIQ. I will hold off on this, as I feel that the potential for a bigger pull back between now and Christmas is considerably good.
For the indexes, the daily charts are showing a potential top formation, but it is not confirmed. The monthly and yearly charts are showing that we recently broke out from a 1-2-3 bottom, or "inverse head and shoulders" formation. In the long run, the monthly and yearly charts are the way to play this. Short term traders need to watch the daily chart more closely.
Volitility was up big yesterday, but gave up half of those gains today. One way to play the volitility is with a credit iron condor spread. The goal of this trade is to be market neutral, and profit from credits on option spreads. You can do this with your stock account with options on the symbol SPY (an etf that tracks the S&P deposit receipts). You can also use SSO, SDS, SH, etc., but I prefer the massive liquidity of SPY for this play.
To put on a credit condor, you sell a call, and buy a call with a further from the money strike price. You also sell a put, and buy a put with a further from the money strike price. The result is that you receive a credit from both option spreads. Loss and profit are both limited by the differences in premium (limits profit) and the difference in strike price of the (calls) or (puts). The best time to put on a credit condor is when volitility has been up, an example would be the early to mid July time frame when volitility spiked, and then came back down as the rally resumed.
When choosing which strikes to use in your condors, your goal is NOT to have short options (the ones you sold) go "in the money." I also like to put on this spread with anywhere from 10 days to 4 weeks until expiration. This is not a long term play, you want the odds on your side that the market will not shoot past the strikes of the short options on either side.
The play I still recommend for everyone, especially until we know we are out of the woods (which I beleive we are far from it now), is to buy high quality stocks or covered calls on these good dividend "blue chips." If we get a rally this week, you can sell calls against your position for higher premium and either buy puts (set a 30% loss limit on these) or hold the premium collected to buy more shares on a pull back. If you invest/trade this way, you will win in the long run. Also, it is best to use leap calls and puts. Let's say the market goes higher. You would have unloaded your puts for a modest 30% loss. You can buy back your short calls and "roll" them out-that is sell a further out strike (which will now bring back enough premium to cover the difference from buying/selling the original option, plus a profit). You can keep rolling out your calls indefinitely.
As always, you can e-mail me with questions or comments at lmrtrader@gmail.com , I would love to hear from you!
Monday, August 17, 2009
Update for August 17, 2009
Well, there you go. Exactly why I encouraged everyone to protect their stock ivestments (just yesterday) with the option hedge. And, Im going to let my hedge ride at least into tommorow.
These markets are fickle and can turn on a dime. It's a great idea to insure your positions!!!
It will be interesting to see if the sell continues. I know Im ready either way, and I would love to see blue chip stocks go on sale this year like they did last!
Im not saying it's time to load the boat yet...but when that time comes to start loading the boat, I will definitely be giving that advice.
These markets are fickle and can turn on a dime. It's a great idea to insure your positions!!!
It will be interesting to see if the sell continues. I know Im ready either way, and I would love to see blue chip stocks go on sale this year like they did last!
Im not saying it's time to load the boat yet...but when that time comes to start loading the boat, I will definitely be giving that advice.
Sunday, August 16, 2009
Trading and Investing strategies for Aug-Dec 2009
August 16, 2009
Technical indicators remain bullish, but there is much bearish sentiment out there.
For investors, it may be a good idea to buy blue chips and hedge the position. Personally, I like to sell calls against my shares, and at this point in time, buying puts with the collected premiums. Look for the leap options, those with the most time left until expiration. Some of you may prefer to purchase bear market etf's, I like the leap puts.
For those of you expecting a sell off, use bear market etf's with caution. If the trade doesn't go your way, get out pretty close to where you got in. You can always take another shot at it from a higher price.
The stocks Im looking at right now are a handfull that held up well during the panic last fall. MCD, KO, PEP are my three favorites. Study the price charts and you will see what Im talking about. These also pay good dividends. The goal is to accumalate as many shares as you can, and grow your dividend check (they pay quarterly).
Normally when I sell calls I use the premium to add shares, as I do when dividends are paid.
For shorter term plays, I use stock picking software. The program scans the technical information that I normally look for, and saves me time. I then go through the picks generated and study the charts for entry and exit points. This software has helped me identify more opportunities with less time spent hunting for picks. It works great as long as you do your own due dilligence. You can learn more about this artificial intelligence, as well as get answers about trading and investing by e-mailing me at lmrtrader@gmail.com
Until next time, I wish you luck with your trading!
Technical indicators remain bullish, but there is much bearish sentiment out there.
For investors, it may be a good idea to buy blue chips and hedge the position. Personally, I like to sell calls against my shares, and at this point in time, buying puts with the collected premiums. Look for the leap options, those with the most time left until expiration. Some of you may prefer to purchase bear market etf's, I like the leap puts.
For those of you expecting a sell off, use bear market etf's with caution. If the trade doesn't go your way, get out pretty close to where you got in. You can always take another shot at it from a higher price.
The stocks Im looking at right now are a handfull that held up well during the panic last fall. MCD, KO, PEP are my three favorites. Study the price charts and you will see what Im talking about. These also pay good dividends. The goal is to accumalate as many shares as you can, and grow your dividend check (they pay quarterly).
Normally when I sell calls I use the premium to add shares, as I do when dividends are paid.
For shorter term plays, I use stock picking software. The program scans the technical information that I normally look for, and saves me time. I then go through the picks generated and study the charts for entry and exit points. This software has helped me identify more opportunities with less time spent hunting for picks. It works great as long as you do your own due dilligence. You can learn more about this artificial intelligence, as well as get answers about trading and investing by e-mailing me at lmrtrader@gmail.com
Until next time, I wish you luck with your trading!
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