the September 2014 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
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
it to your options trading friends.
To access previous issues of the newsletter, click here.
Strong Summer, Strong Fall? - September Newsletter
|This has been an interesting summer so far. In fact, looking back, it's
really been an interesting couple of years of nearly pure bullishness. We've seen all of July's
losses recovered in August and then some? Will we see a strong Fall as
For the last few months, I've been talking about a new service I'm starting.
Well, it started last month with a live web session on technical
out information on that as well as up coming sessions later in the
newsletter. In addition, I have answers to your questions, Options
Strategy Focus where we'll supplement the web session with some discussion of
using fibonacci retracements to time entries and exits. 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
feedback page and let your voice be heard. This can be done
anonymously so please consider how you can help make the newsletter
Announcement: Live Web Sessions Schedule
This month, we launched a new service in the form of periodic live Web
sessions. This month's session was quite successful as we had a number
of attendees join and participate in the discussion. If you missed it,
you can still obtain the recorded session. See below for more details.
The next session will be held during market hours so we can actually
play around with some spread entries and actually execute the trade in a
virtual account. I've received requests for a variety of topics, one of
which is on Calendar Spreads. I will get to that one but felt it would
be good to follow the prior technical analysis session with this entry &
exit session. Here's the schedule as it stands now.
for Options Traders
This hour session offers tips for
technical analysis tools for
improved timing of entry and exit of spreads trades. We
introduce different technical analysis concepts and highlight
ones that may be best for options traders.
Level: Beginner - Intermediate
Purchase Recorded session.
Recording cost: $12
7:30 AM MDT
Spreads Entries and Exits
This session will focus on different entry and exit strategies
for short vertical spreads. We'll examine strike selection,
position sizing, entry timing, exit rules and more. This will be
a great follow-on topic to the technical analysis session. We'll plan
about 30-40 minutes of formal presentation with 20 minutes of
Seats limited to 25 so don't wait to sign up.
Session cost: $18
||Calendar spreads entry
Calendar spreads can be a complex spread to trade. In this
session, we'll cover ways to analyze potential profit, entry
strategies, exit strategies and management.
This session will focus on a number of topics related to
portfolio management including how many trades to have,
balancing the portfolio for market bias, using portfolio greeks
to make additional trade decisions and more.
Each session will be recorded and made available to attendees. If you
can't attend a session, don't worry. Once the session has completed, the
recording will be made available for a very reasonable price. They'll be
announced and listed on the Options Trading Videos page as well as in
future newsletters so stay tuned.
We are planning additional sessions so continue to use the
feedback form to make suggestions and requests for future sessions. Use
this survey to have your say.
Options Strategy Focus: Fibonacci for Options
| This section of the newsletter will focus more deeply on the details
of some of the options strategies I use in the tutorials. I touched on
Fibonacci retracements briefly in the
live web session last month but I
wanted to spend a little more time on them here. In particular, I want
to focus on using them to time entries and exits of options trades.
I want to use the SPY chart above for our discussion. Without getting
into too much detail, a Fibonacci retracement requires a bit of setup.
you can see, it began back before I really knew what the market was
doing. I simply noticed a low and a high point followed by some selling.
I drew the Fibonacci from those two points to get an idea of where the
SPY might (emphasis on might) retrace to.
As it turned out, the SPY sold off to the 61.8% level and briefly
bounced. Initially, it looked like that support level would hold. When
it failed, where did it retrace to? The 50% level. Because a trader can
only consider the hard right edge of the chart, at either of these
points, I'd have suspected there might be a bounce. The nice thing is
that both are definitive points that can also be used as an early exit.
As I said, I really want to explore this as a way to enhance entries and
exits. So, let's use some examples.
Notice that the goal here isn't to avoid loss, it's to minimize
loss and maximize gains by taking
high probability entries. I hope you
can begin to see how a tool like Fibonacci retracements can help give
you a definitive point to enter and exit trades. If you want to learn
more about Fibonacci retracements, you can visit the
fibonacci page on the website.
- Let's say entry A was the day of the bounce from the 61.8%Fibonacci
level. I might have taken a bullish entry on a
short put vertical
spread. To protect myself, I could have entered a stop loss that would
have closed the trade when the SPY dropped below the 61.8% level, which
is $182.44. In this case, that would have saved me a bigger loss as the
SPY reversed and fell through that level - potentially a long way.
- As it turns out, entry B is only a little ways farther down at the
50% level ($180.49). The market again finds support and bounces. I could
again enter a something like a short put vertical spread with a stop
just a little below $180.49 for protection. As it turns out, this one
runs all the way back through that 61.8% level and back up to the 100%
level. This trade would have been successful.
- There may have been a possible bearish entry as the SPY reached the
100% retracement level. I personally didn't like the way the SPY was
caught between resistance overhead and the support provided by the 30
average. As a result, I chose to wait.
- Entry C might be the break of the 100% level ($188.74) on the
principle that old resistance becomes new support. That support now
gives me a firm exit point. If the SPY falls below $188.74 by much, then
bullish assessment was wrong and therefore the trade is wrong. As it
turns out, this was a good entry that again paid off.
- The next entry (entry D) doesn't come until the 161.8% level
(198.94). This is currently resistance and so a good bearish entry
point. The only thing that would make me cautious on the first touch of
that level is that there is pressure on the lower side by the rising 30
day moving average. What makes me confident to enter the trade here is
that I know if the SPY moves definitively above $198.94 then I have an
early warning sign to exit.
I hope you found these tips helpful.
Some of you who have found a way to trade successfully while working full
time may have tips of your own. If
so, pass them on to me via the contact me
link and I'll pass them on in the next newsletter.
Back to the table of contents.
Answers to Your Questions
|I frequently receive email from visitors to the site with
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!
I just recently received a question regarding ETF options.
Q: Could you possibly post a list of the most liquid ETF options that you trade?
A: I recently posted a video on how to perform a search using the
thinkorswim platform. You can find this video
here. I would personally recommend that you set up and run your own
searches. I'm not aware of any other trading platforms that can do a
search for liquid optional ETFs.
That said, I understand that some subscribers to this newsletter may
not have access to the thinkorswim platform. My next suggestion is to
stick to the the main index ETFs. By that, I mean the SPY, DIA and IWM
(possibly the QQQ as well). The main advantage of these 3 or 4 ETFs is
that they represent a fairly broad segment of the market. That means
when the market is up, your ETF is up and so forth. The ETFs themselves
are very liquid as are the options on them. They offer quarterly options
as well as weekly options. They are actually my favorite vehicles to
trade options on.
There are others that can be traded but it's
important to understand any ETF before trading. Be sure to check out the
Index Option trading page and the
ETF Options page for more background.
Help me ensure we have an interesting question or two to respond to
next month. Submit your questions at this
Back to the
table of contents
|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
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.
expectations may change if the charts indicate something different
during the month.
In the last month (well actually all summer) the market has continued to
rise. Except for a small pullback in July, we've seen constant
In the August newsletter, I summarized my outlook as follows.
"...As we head into August, the question is; will we see more selling or is there some sort of bottom? Let me cover a few possibilities.
As of Friday, the sell-off has only been 3% from the high of $1991. I would not be surprised to see closer to 5% as we haven't really had
that kind of selling since late January. In addition, 5% would be just about at the point of the lower end of the range I've drawn above.
A break below that level even would signal a more major sell-off. In addition, the VIX is high but not as high as it was in other recent
sell-offs. On the bullish side, we are near (but not at) the bottom of the channel with a candle on Friday that could be a bullish hammer
- but needs to be confirmed on Monday.."
Here's how the August played out.
As you can see in the chart above, the selling did indeed continue all
the way to the bottom of the channel. Once that happened, we saw
constant buying until the SPX returned to the 50% line. If you look
along the entire year, you can a pattern where the SPX returns to that
center line. It either rides the under side of it or the top side of it.
That of course leaves the question as to what will happen now as we are
right at the line. Just to add some perspective, I added a monthly chart
showing the last 20 months. Notice that with a few exceptions, there
have been an awful lot of positive months in the last 20. In fact 16 out
of the last 20 were bullish.
As we head into the Fall timeframe, one has to wonder if the bullishness
will continue. I find myself wondering if the market is getting a little
of course it's too early to know for sure. However, I
believe the 50% line of the channel will be a test. If the SPX can move
decisively above this level in the next day or so then maybe we do have
more bullishness. If we see a failure to cross decisively over this
level that could indicate that the sentiment is shifting. Keep in mind
that the longer the bullishness lasts, the more pressure that is created
for a correction.
Just to muddy things up further, consider the discussion in the Options
Strategy Focus. While there is the possibility of the market turning
over and correcting. There is also the possibility that we'll see
additional bullishness. One argument for that comes from the current
Fibonacci retracement that I drew on the SPY (the ETF for the SPX). If
this level holds, it will be a support level that could
As with last month, we are at a point where I wouldn't consider taking
action until I see the market move one way or the other. That doesn't
mean I sit idle. I'd be looking at both bullish and bearish trades. I
would probably look at shorter term bullish trades and longer term
bearish trades. My rationale is that we saw a short lived correction
recently. Another correction at this point will likely be deeper and
longer lasting. The technical analysis web session we recently recorded
might be good to get and watch to help you prepare for market changes.
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.
on technical analysis.
Options strategies I use
Be sure to take time to
feedback on the newsletter.
Back to the
table of contents
|I'm adding a new section to the newsletter. Feel free
to disregard if you aren't interested in product information.
As I announced earlier, I just released the second for sale'
video last week. The title of this video is "Mastering Short Vertical
Spreads". I now have at total of two 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.
more information or to purchase the video.
Short Vertical Spreads
The focus of the video is on one specific strategy, including all
aspects of of the process. This includes:
I'm excited about this
project. While a long time coming, it's been a
labor of love. Many know this is my go-to strategy for options trading.
After watching the video, I'm certain you will understand why.
- Understanding the construction and the trade progresses
- Selecting the long & short strikes
- Planning entry & exits
- Managing the trade once entered
- Back testing
- Creating a trading system with the strategy
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
Back to the
table of contents