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Success With Options - Monthly Review, Issue #85-- March 2017 Edition
March 01, 2017
Hello,

Welcome to the February 2017 edition of this newsletter!

This is a monthly newsletter packed full of tidbits not found on the website. This is my attempt to stay connected with those who find value on the the website and want more.

Since this newsletter is published (nearly) every month, you are always up to date and empowered to be a better trader. That's because I'll be sharing lessons I've learned over the prior month, answering questions from other viewers and providing a spotlight on useful websites and trading tips. If you find this newsletter valuable, pay it forward and send it to your options trading friends.

To access previous issues of the newsletter, click here.

Anatomy of a Trade Entry Part 2 - March Newsletter

Wow! Another crazy month in the books.

We have another bullish month in the books it it doesn't seem to be hesitating.. So what's next? We'll have answers to that question, tips on Options Trading, Answers to Your Questions and more. For more details, read on...

I'm always interested in receiving feedback on the newsletter. If you haven't done so recently, please consider taking a few minutes to visit the newsletter feedback page and let your voice be heard. This can be done anonymously so please consider how you can help make the newsletter better.


In This Issue

1) Options Strategy Focus

2) Answers to your questions

3) Options Outlook

4) Featured Products



Options Strategy Focus: Anatomy of a Trade Entry - Market Assessment

This section of the newsletter will focus more deeply on the details of some of the options strategies I use in the tutorials and other topics related to options trading.

A subscriber recently submitted newsletter feedback requesting coverage of trade entries and exits. As a result, I'm kicking off the 2017 with a series of topics on just that. This is the second in that series focusing specifically on market assessment. For the overview, check out last month's article.

Key Elements of an Entry: Market Assessment
In the overview of trade entry, I mentioned that this is one of the more critical aspects of the trade. To decide to enter a trade assumes you've assessed the market and have formed an opinion about that the market will do. In this issue, I'll look at this more in-depth and provide some things to consider in your assessment.

Keep in mind, we can use all kinds of indicators and tools to analyze what the market is doing. The goal is to assess what the market MIGHT do and from there arrive at a target strategy that benefits from the projected behavior. This will NOT consider what happens if that assessment turns out to be incorrect. That's a discussion we'll cover when we get to Trade Exits.

Here are some tools I use to assess the overall market to arrive at an outlook.
  1. Charts - My 'go to' tool is always the charts themselves. When I'm assessing the market, I first look at the overall behavior of the stock, ETF and of course the broader market as indicated by the DOW, S&P, etc. There are several things I look at to arrive at a conclusion.
  2. These fall into the category of technical analysis.
    1. Trend - It's important to consider the overall trend. I like to start with the 1 year, followed by moving inward (6 months, 3 months, 1 month). What's going on overall. You often see this employed in the monthly options outlook section in the newsletter. There is an often quoted phrase in trading: "The trend is your friend". Know what the long, medium and short term trends are and whether they align or whether the are different. This might be setting up a change in a longer term trend.
    2. Support and resistance - Coupled with trend, this is probably THE most important aspect of analysis. If you've spent any time watching stock charts, you'll see that support and resistance plays a huge role. While it's tempting to view them as absolute levels by which the stock or ETF will not breach, it's better to consider them a line in the sand. There is a good probability that support or resistance may be respected. However, it's also a good indicator of being wrong - kind of like an early warning system. I will often use a stock or ETF being close to a support or resistance level to place a contrarian trade BUT use that very same threshold as the trigger to exit if breached.
    3. Chart patterns - Chart patterns are a common staple of  technical analysis. Patterns have often been found to be strong indicators of future potential behavior. The trick to successfully using patterns is to become very familiar with how they manifest, when they work, when they fail, etc. By the way - a variation of chart patterns is candlestick patterns. These are combinations of candlesticks (usually) that provide a very similar forecasting capability.
  3. Volatility - Volatility can be a very handy indicator, particularly for counter-trend trading or contrarian trading. By this, I mean that I often use extreme high volatility and extreme low volatility as a potential indicator for a reversal. When I'm looking at charts, a trend and support and resistance, I can confirm a suspected reversal by the corresponding level of volatility. The tough part about volatility is that it's difficult to use it to determine exact timeframes. Volatility can remain at an extreme low for some time or even an elevated high for some time. As such, it really only serves to confirm or add to the body of evidence of what might happen.
  4. Studies - While related to charts, I tend to consider them in a separate category. This is mainly because I don't often employ them unless I want to confirm a suspicion about potential market behavior or because the information I obtain from the charts themselves don't provide much clarity. I have two or three favorite studies that I use. They are all oscillator type studies and are the stochastic, MACD and one found on the Prophet charts in the thinkorswim platform called the Market Forecast. All or most of these have been covered on the web site so I won't go into detail here. Suffice it to say that these can also be helpful in projecting potential reversals and I like to use them to confirm the potential for entering a counter- trend trade.

I've covered a lot in this edition and referred to quite a number of topics that would require additional coverage on their own. Rather than duplicating here or in a future newsletter, I want to conclude with a list of references to sections of the website that have more detail.

  • Overall technical analysis discussion, including different tools and approaches
  • Candlestick patterns in more detail
  • Videos - There are several videos - both free and for sale that cover and demonstrate a number of the techniques I've outlined above.

 As always, please send me feedback with any requests for topics or thoughts on what has already been published.

Happy trading this month!

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Answers to Your Questions

I frequently receive email from visitors to the site with questions that aren't answered directly from content on the site. Many of these are great questions and I think the answers would be valuable to all readers. Each month I'll be posting one or two questions, so stay tuned!

This month, I had several questions asking about whether I'm still active with the web site and creating videos. Let me take time to address here.

Q: Just stumbled across your site and would like to know if you are still trading and updating the videos? 

Q: Great content.  Love the stepwise approach.  I was wondering if you have more recent info.  The videos on youtube are poor quality.

A:
The general answer to these questions is that I am indeed still trading. I am also continuing (obviously) with the monthly newsletter. However, I must confess that I have not really added much new content to the web site, nor have I recently created any new videos. I realize some of the older videos are a bit more low resolution (hence the low quality). Most of the recent videos though have been recorded with at least 1280x1024 resolution, which should be good enough.

Perhaps the bigger question is whether I have any new projects planned. There are several things I plan to be working on and am in fact working on right now. I mentioned in a recent newsletter that I've begun defining the material for a Calendar spreads course similar to the Mastering Short Vertical Spreads course. That has gone more slowly than I planned but hope to begin recording that very soon.

Additionally, I have begun to consider possible new content for the web site. The recent series I'm doing on in the newsletter has me thinking that perhaps there may be an opportunity to translate that to the web site for more broad consumption. I may begin that project once a few more the 'entries' topics have been written.

If you have any thoughts or suggestions on topics that should be added to the web site or topics that should be covered in video, please use the feedback link or contact me link to let me know.

Help me ensure we have an interesting question or two to respond to next month. Submit your questions at this page.

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Options Outlook

In concluding this newsletter, I want to provide a brief outlook for what I'm expecting for the next 20-40 days. Before I do, I need to insert the following disclaimer.

 
This is not a recommendation to buy or sell stock, ETFs or options. It is simply my opinion of what I expect and how I plan to trade. As such, expectations may change if the charts indicate something different during the month.
 

Another bullish month. Will we see the market run out of steam?

In the February newsletter, I summarized my outlook as follows:

"...What happens next is hard to predict. However, let's look at some possibilities.
  1. We see a bounce from the support level at the 20 & 30 day moving average. Expect range bound movement between that level and the 161.8% fib level until a break of one or the other occurs.
  2. With the month long sideways market, there could be a powerful push to break the 161.8% level. Watch for this to occur on increasing volume on upward moves.
  3. The protracted bullish trend runs out of steam and we see a test of support at $2200. Watch the support at the 20 & 30 moving average to be broken on volume to indicate the next move may be down.

On the surface, this may not seem helpful. However, consider that each of these possibilities has with it some potential trade strategies that can be used. While it may not seem obvious what will happen, each of the above options has indicators that can tip you off as to what might happen. I recommend having some ideas ready for each possibility and monitor the market, being ready to act. With each possibility, there is also the potential to be wrong. As a result, plan to have an exit strategy and trigger planned out ahead of time. ....."

Here's how February played out.



As you can see, the market took option 2. We saw a run right up the the resistance level and with barely a pause, it broke through on volume. What this ultimately means is that the market currently has a bias towards more bullishness.

Is there more to go? With no overhead resistance, I see the odds favoring a push to some position that is fairly overextended. A breakout such as this should match the last support to resistance range, which is about 48 points above the breakout line. I am expecting at some point to see a re-test of the support level. It seams reasonable that after running up for some time, the current bullishness would run out of momentum and fall back to re-test. The real question is when that happens. It's fairly difficult to judge at the moment.

What this means for me is that I'm looking for a moment of weakness to find a new entry point. Right now is a fairly risky time to be entering. I'd recommend being prepared with a short put vertical spread on a pullback or possibly setting up a put calendar spread in anticipation of an eventual pullback.

As always, do your own analysis and whatever trades you enter, use good money management and have exit strategies in place in case you are wrong in your analysis. It's a good practice to be prepared with trades in either direction but not to act without confirmation.

Remember to stay nimble and alert. Make a point of doing market analysis every day, especially if you have open trades. If you choose to enter any trades, be sure to do your own analysis and follow your rules for entry and exit.

More on technical analysis.

Options strategies I use

Be sure to take time to provide feedback on the newsletter.

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Featured Products

I'm adding a new section to the newsletter. Feel free to disregard if you aren't interested in product information.

One of the more recent additions to the portfolio of services and products is the Live Web sessions. These sessions are recorded and and available for a very reasonable price of $12 per session. I've created a Newsletter Special. If you add all 4 sessions to your shopping cart, you can get 4 sessions for the price of 3 by using the discount code: WebEx4Pack

Some time back, I released the second for sale video. The title of this video is "Mastering Short Vertical Spreads". I now have a total of two strategy training videos for sale . Here is a quick summary of each.

An Introduction to Options Spreads
This video provides a good coverage of the basics of options spreads, including why they are preferable to other options strategies like buying options and selling naked positions. What I believe makes this video valuable is that it combines presentation with interaction. Once you have the basics down, you will be well-prepared to start digging deeper into some of the options strategies employed on this website.

For a relatively small cost of $29, you can own this video, which offers over 40 minutes of material. This package is very easy to install and use.

For more information or to purchase the video.

Mastering Short Vertical Spreads
The focus of the video is on one specific strategy, including all aspects of of the process. This includes:
  • Understanding the construction and how the trade progresses over time
  • Selecting the long & short strikes
  • Planning entry & exits
  • Managing the trade once entered
  • Back testing
  • Creating a trading system with the strategy
I'm excited about this project. Many know this is my go-to strategy for options trading. After watching the video, I'm certain you will understand why.

For more information or to purchase this video

Special Discount offer:
If you'd like to own both videos, you can do so for a bulk discount. Simply add both videos to your shopping cart and then enter the discount code 'combo10' to receive $10 off your shopping cart total.

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