Weekly Stock Options Trading Tips: November 3, 2009

Option Trading Idea of the Week

Last week I offered you a short video explanation of the options strategy I conduct at Terry's Tips. In case you missed it, you can catch it here.

This week I would like to offer a second video which explains how to set up an options portfolio which promises a double-digit return in one month over a fairly wide range of possible stock prices.

Click here for the second video - How to Create a Conservative Options Portfolio.

In addition to a short explanation of how to set up the portfolio, the video explains why the strategy works. The short answer is simply because decay rates of short-term options are quite different from the decay rates of long-term options.

It's that simple. The rest is only details. If you understand the decay rate phenomenon, you get the entire idea. I hope you enjoy the short presentation.

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 7 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

The market once again declined this past week and as I stated last week it was not really much of a surprise given the recent advance. The stock market has been on a tear since it hit a 12-year low on March 9th. The S&P has gained 60.6% since the low.

All of the ten major sectors finished the week lower with the Materials and Financial sectors leading the way and as a result the S&P declined 4.0% for the week.

The S&P 500 (SPY), Dow (DIA), Nasdaq 100 (QQQQ) and Russell (IWM) declined 4.0%, 2.6%, 5.1% and 6.3%, respectively. For the year, the S&P 500 is up 14.7%, the Dow has advanced 10.7% and the Nasdaq is leading the way with a 29.7% gain.

Technically speaking, the major indexes have moved into a short-term oversold state. Moreover, the S&P 500 has pushed down to what has been a very strong area of support over the intermediate-term. We should see a test of this next week and how the S&P reacts to this level should be quite telling going forward. I do expect to see a bounce given the short-term oversold nature of the major benchmarks, but how long it lasts is anyone's guess.

On the economic front, the consumer spending number released Friday was probably the most important bit of information given to market participants. Consumer spending, which accounts for 70% of total economic activity, dropped 0.5%. It was the first decline in five months and the biggest since December.

"This recovery is going to be very weak. Consumers are in no position or mood to spend. Their wages are down and they can't get credit," said Sung Won Sohn, an economics professor at California State University's Smith School of Business.
However, the overall economy, as measured by the gross domestic product, actually grew at a 3.5% rate from July through September, signaling an end to the longest recession since the 1930s.

Either way you look at it, bullish or bearish, we are in a fight right now and it could take quite some time before we see any type of long-term move to the upside. Yes, we have seen a nice intermediate-term advance over the past several months, but will it hold. Will we see a double dip recession? There are just so many questions that need to be answered. I do think we could see a nice trading range established, particularly after such a nice advance over the past few months. That type of price action should bode well for premium selling strategies.

Andy

Overbought/Sold Condition Report

Overbought/Oversold as of November 3, 2009

Major Benchmarks

• S&P 500 (SPY) - 54.2 (neutral)

• Dow Jones (DIA) - 52.7 (neutral)

• Russell 2000 (IWM) - 44.6 (neutral)

• NASDAQ 100 (QQQQ) - 57.8 (neutral)

Testimonial of the week

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