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Success With Options - Monthly Review, Issue #69 -- September 2015 Edition
September 06, 2015
Hello,

Welcome to the September 2015 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.

Volatile September? - September Newsletter

Holy cow! What a change from last month. We've seen quite a change in the market as a number of factors, including the financial issues in China have played out. What's up for September?

In this edition we'll tackle that question, explore an interesting trading strategy for this market and revisit an older question that was submitted by a reader.

Finally, we'll close as usual with a Market outlook for you. 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: These Volatile Times

This section of the newsletter will focus more deeply on the details of some of the options strategies I use in the tutorials. With a month like we've just seen, I feel compelled to go back re-visit some thoughts on how to trade in a volatile market.

The first thing to acknowledge is that something big has happened. We are often caught off guard when we see the kinds of behavior we've seen over the last few weeks. If you're in trades that have gone against you, you might find yourself a bit paralyzed as you watch in morbid fascination while your trade goes completely wrong in just a few days.

Take a moment to step back and simply absorb what is happening. If you are following good money management rules, you will find some of your trades will be threatened and could indeed lose money. However, in the scheme of things, shouldn't have a big impact on your portfolio. I often take this opportunity to step back and look at my year. I note that there are several months where I have one or two losing trades, but the overall trend of my trades is profitable - in other words my portfolio is growing month over month.

Now that you've gotten over the shock of what's happened, now what? We were bullish to neutral but that's clearly changed. You may find yourself conflicted with two different fears at this point when considering a new trade. The first is fear of additional loss - the fear that if you put a trade on, it may be wrong and you'll lose more. The second is the fear of missing an opportunity.

Neither of these fears should be the driving factor behind your decision to trade or not to trade. It's important to be clear headed about your decision. If you feel you can't do that, it may be best to simple step away and do nothing. While you are deciding what to do, consider these factors.
  • Higher volatility means better premiums for strategies such as vertical spreads and iron condors. This means that regardless if you remain bullish or have become bearish, you can either get a higher premium for a position you might typically take or you may be able to take a more conservative position for roughly the same premium.
  • Markets tend to behave in irrational ways and can sometimes be over sensitive to news. Take the time to assess the fundamentals of the market & economy in general. What are the factors that are driving the behavior in the market. Are these systemic issues or short-term issues.
  • Consider that in the case of our current situation, the market has been in a long term up trend since late 2011. It's healthy for the market to go through periods of 'reset'.
The most important thing to focus on is that nothing stays the same forever. If the current market climate is a bit more turbulent than you feel comfortable with, take a break. Opportunities will come at a future date.

If you feel like putting your toe in the water, take small positions. Don't enter all your trades in one day. You can spread your risk out by entering a position, waiting a day or two and entering another trade and so forth. Remember, you want to make your trades in a clear headed way. Take some time to get perspective on the trend in the long term and in the short term. Take the time to put those technical analysis skills to work.

For more information on the technical analysis, check out the Technical Analysis page on the website.

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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 received a suggestion rather than a question. Thanks to Terry Bingham for this new approach to setting up a spread.

Q:  I just finished reading your August news letter and I felt compelled to drop you a line. I've been a fan of your site and appreciate all the time you spend keeping it up and running.

In your videos of the Ameritrade TOS platform I’ve noticed that when you are selecting your strikes on the trade tab, option chain that you like to use the (RIGHT CLICK - SELL – VERTICAL – DEEP AND WIDE) method of selection.

My personal preference is to hold down the Ctrl. Key and then click on the individual bid and ask prices of the option chain at the exact spread spacing that I want.  This also works for strategies like Iron Condors and Calendars because you can use the scroll wheel to move around the option chain while you are still holding the Ctrl Key.

I'm not sure if I'm telling you something you are already aware of, but if not you might find this method quicker and easier to setup your positions.

A:
Thanks Terry for this great suggestion. It does seem to work more efficiently, though I may have to work to train myself to use that approach as opposed to the one I've been used to using for the last several years. I'm not sure when this feature showed up in the product but it's a great addition.

For those of you who have never given this approach a try, I encourage you to at least try it. Old habit may be hard to change but you might just find yourself preferring this approach.

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.
 

Wow! How about this last month? The last few weeks have certainly given us a lot to talk about, right? We shouldn't be too surprised though as I've been hinting something might change. You can't just keep going up forever.

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

"...At the very least, this should provoke a degree of caution. As we remain within the range I've outlined above, there are really only a few possible outcomes.
  1. We continue for a while in this range, which is about 75 S&P points wide
  2. We eventually push out over the top of the range for a resumption of the up trend
  3. We see the range support fail, which could indicate moving into a bearish phase
You might be saying, "Thanks, Captain Obvious, but I could have come to those conclusions." However, part of doing the analysis is to first identify what you expect might happen or could happen. Once that's done, you might decide to determine what are the more likely outcomes AND prepare for the case when the other possibilities might occur.
"

Here's how August played out.



Last month I noted that we'd moved into a sideways trend, but the most concerning part of that is that the SPX had broken down through the up-trending channel. News of a number of market factors , including the financial crisis in China, caused traders to decide enough was enough. Selling accelerated as fears mounted. So far, we've seen the lows down to $1875, which amounts to roughly a 10% selloff.

So, what next? More of the same? Since this is written after 4 days of September trading, we know there has been a bit of selling from the initial bounce. Will this mean another leg down? It's honestly too hard to tell. We know that the current low is around $1875 but there is a more recent intermediate low around $1925 set on Sept1. If we see that level hold and the SPX head above the high just around $2000, then I'd say we might be cautiously bullish again. If $1925 fails to hold, a lot of things could happen. We could see $1875 tested again.

I mention these points because I consider them lines in the sand so to speak. We can't really know what WILL happen but we can observe what MIGHT happen based on those lines being crossed or not.

For now, I'm remaining cautious and taking very small positions as I wait for the market to reveal it's next moves. I've got both bullish and bearish trades I'm considering depending on how I see the next week play out.

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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