Stock Option Trading Idea of the Week
Update on our Gold Bug Portfolio
This is the risk profile graph for our Gold Bug portfolio as of a week ago after the February expiration when GDX closed at $44.57. It would require about $4500 to duplicate the positions we hold in this portfolio.
The portfolio should make a 20% gain in the next 3 weeks if the underlying GDX stays flat or goes up by as much as 10%. A large stash of cash has been set up to buy downside protection if the stock falls.
In the February expiration month, the stock fell by a relatively large 6% and the portfolio lost only $78. We have high hopes that the price of gold will stop falling or maybe even go up a bit, and give us some nice gains this month.
In case you missed the videos I offered over the past few weeks, you can catch them here by clicking on the title you missed
- Why Stock Options are Better Than Mutual Funds.
- How to Create a Conservative Options Portfolio.
- How to Use Options to Invest in Gold.
- Making Adjustments to a Conservative Options Portfolio.
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
Andy's Market Report
It was a volatile week for the market. Market participants witnessed two sharp declines and two rebound rallies only to watch the market finish the week slightly lower. The Dow lost 100 points Tuesday only to rally 95 points the following day. Thursday was one of the more volatile days that we have seen in the past few months with a steep loss at the open followed by a big afternoon rally.
"We're in a time period where the range of potential outcomes is probably wider than it's been for some time," said Colleen Supran, a portfolio manager at Bingham, Osborn & Scarborough in San Francisco. She pointed to concerns about everything from unemployment and housing to heavy debt loads in Greece and other parts of Europe causing another recession.
"Are we going to have a double dip? Are corporations going to be able to grow earnings? That's sort of the bottom line for stock prices in the long run."
As I always state, patience pays and during the course of the week it was helpful to remind myself of this phrase. It would have been very easy to get caught up in the daily vacillations of the market. The whipsaws that move before us on the screen can often cause hysteria if only looking out over the short-term. Yes, the near-term price action of the market was indeed choppy this past week, but the intermediate-term trend remains bullish. Of course, that can quickly change if we witness a move that dips and stays below the current area of strong support, but until then we have to look at the recent 'dip and buy' scenario that played out over and over this past week as just another positive for the bulls.
Technically speaking, the major indices are all in a neutral state so there really isn't too much to go on over the short-term (1-5 days). As I have stated over the past several weeks we could see months of range-bound movement among the market indexes. This can be frustrating for most market participants (bulls and bears), but those who employ options-selling strategies could benefit nicely from the lack of movement.
One thing is certain the economy is still fragile and no one truly knows what road the U.S. is going to go down. GDP for the 4th quarter was reported at 5.9% which was better than the 5.7% the economists' had anticipated, but later that afternoon more housing woes were reported as January Existing Home Sales were much weaker than expected.
Furthermore, after three straight months of positive reports the Consumer Confidence Index (CCI) plummeted on Tuesday. The CCI fell to 46.0 in February from 56.5 in January.
The overall index remains at historically low levels and is the lowest since April 2009. A reading of above 90 indicates a stable economy, while 100 or greater is an indication of strong growth.
"One report does not a trend make," said Carl Riccadonna, senior economist for Deutsche Bank in New York. "This is a yellow flag but not a critical development to be sure. At economic turning points, we often show volatile fits and starts."
Next week brings a few interesting economic reports including the Fed Beige Book, the ISM numbers and the always highly-anticipated employment report. The latter could lead to nice move in the market. Time will tell who winds the tug-of-war over the near-term.
Andy
Overbought/Sold Condition Report
Overbought/Oversold as of March 1, 2010
Major Benchmarks
- S&P 500 (SPY) - 60.5 (neutral)
- Dow Jones (DIA) - 55.6 (neutral)
- Russell 2000 (IWM) - 64.5 (neutral)
- NASDAQ 100 (QQQQ) - 64.5 (neutral)