This week I would like to offer something different. On Sunday I received an email from one of my subscribers in which he expressed his thoughts about the new Weekly options that are now available on four of the most popular ETFs (SPY, DIA, QQQQ, and IWM). He makes some interesting observations.
You might also check out how well he has done with his investments while following our options strategy.
Terry
Dear Dr. Allen:
I am just as fascinated about the sudden appearance of the weekly series, and I believe the possibilities and money making opportunities are not to be believed. During the past week I have done quite a bit of thinking and pen-to-paper analysis and come up with a few thoughts that you may find interesting and/or relevant, not necessarily in the order of importance:
With these new developments and all the exciting possibilities, it is hard not to get too worked up, so be assured that I am not closing my eyes to all possible risks. And yet, since last October's expiration, I am up about 38% while SPY is up less than 1%. And since that was achieved with the benefit of only ONE expiration week per month, and not four or five, when I think about EVERY week being an expiration… well, you get the picture. But I still keep my eyes open for what can go wrong as much as for what can go right. Tally ho!
Best regards,
Pete
Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.
You can see every trade made in 8 actual option portfolios conducted at Terry's Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
I look forward to having you on board, and to prospering with you.
Terry
The range-bound market continues to please those who employ an options strategy that involves collecting premium. The market remains in a neutral state while vacillating between the 1140 (resistance) to 1040 (support) area. Until this range is broken and holds, I expect to see more of the same. Currently the S&P is sitting in the middle of the range at 1091.60.
Technically speaking, the market has moved into a short-term neutral state so, with no real edge going into next week, the probability of a short-term directional move is anyone's guess.
As I stated last week, I will continue to watch the 1140 level of the S&P 500 as an area of potential overhead resistance. As for support, I am watching for a breach of the May 6 "Flash Crash" lows. The level was tested Friday (5/21), Tuesday (5/25) and again this past Tuesday (6/8), but the bulls were able to hold off all three bearish attempts. This could bode well for the bulls going forward if they are able to first push through the 1105 area of the S&P 500. If so, I think 1140 would be the next stop. I do expect that a push through the first level of resistance (1105) will come with a fight from the bears. A move to that level next week will certainly put the S&P into a short-term 'overbought' state and possibly a 'very oversold' state if the surge is sharp. However, I still want to be aware of the overwhelming bearish seasonal tendency that will be greeting us very soon - Triple Witching. I mentioned the following last week:
June is also a Triple Witching month. Four times a year stock options, index options and index futures all expire at the same time. The performance of the overall market immediately following June's Triple Witching has been absolutely horrible in years past. The week after has seen the Dow down 15 out of the last 17 years. Watch to see if the market is overbought going into the week following Triple Witching. If so, this could have the potential for a decent short-term fade to the downside.
The recent drop has yet to officially push the market down to the requisite 20% that defines a bear market. According to "Bespoke Investment Group" there have been 58 so-called corrections (defined as a decline of 10% or more) since 1927. In 33 of the occurrences, the correction never made it to 20% and the market pushed to higher highs. However, in the other 25 instances the move turned bearish.
How does this correction compare to the others. Well, going back, the other 32 instances (the current one being the 33rd), when the market has fallen as much as this one has the outcome for the bears has been overwhelming with 80% of the 32 instances (or 25) moving into a full blown bear market. The average decline was 35.5%. If that does occur, and the S&P moves below the 1040 support level I will be watching the 920-940 area for a bottom.
Andy
Overbought/Oversold as of June 12, 2010
Major Benchmarks