the November 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
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.
Are We Overbought? - November Newsletter
|What an interesting month! After a month of selling and a
month of bouncing around, we seem to have a month of buying. What does
this mean for November and the remainder of the year?
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. By the way, I apologize for getting this
newsletter out a few days late. It's been a busy month.
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
Options Strategy Focus: Take a Deep Breath
| This section of the newsletter will focus more deeply on the
details of some of the options strategies I use in the tutorials. This
month, I want to talk about a slightly different topic - but still
related to options trading.
How often do you take a break? Is it at Christmas time? New
Year? Vacation time? If you're like me, you have a hard time stopping -
or giving up a trading month. I write this in some free
time I have
while on a cruise in the Mediterranean. Guess what? Most of the time, I
have no internet connectivity. That means no trades.
Can you live without trading for a few weeks? It's a good idea from
time to time, for whatever reason, to completely take a break. As the
title says, "Take a Deep Breath". You have to do
that occasionally to maintain perspective, relax without any
distractions or worries. From my perspective, you can do this one of
- Have no trades active
The best way to take a
break worry-free is to have no active trades. Let them expire or close
them yourself and don't enter any more trades until you return from
- Have a few trades with
exits and good money management
If you feel you must, you can enter trades. However, keep the number
small and use good money management. Additionally, have some automated
exits so your trades can close per your intentions without you having
to intervene. This way, you can ignore your trades for the week or two
you are taking a break. If you find this hard to do, go with option # 1.
As I've stressed, there are a variety of reasons to take a
break, whether it's vacation, interruption of your network connectivity
or for some other reason. Be careful about feeling bound to your
trading. Of course it's true what they say that if you don't have
trades, you can't make money. However, if you are tired or have lost
perspective, you'll likely make more bad trading decisions and that's
also not good for your portfolio.
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!
Since I didn't receive any questions this month, I'll resurrect a
'blast from the past'.
Q: I was reading about
rolling diagonal spreads and doing so multiple times in the same month.
Is that a strategy you employ or recommend?
A: First of all, I can't recommend any strategies for anyone
to trade. I'm not an
authorized broker or dealer. That said, I have
heard of a variety of strategies regarding managing diagonal spreads
and some do include multiple rolls in a given month. The key thing to
remember is that any time you are rolling the short strike, you should
be receiving additional credit. The goal of rolling is to reduce the
cost basis of the trade, which in turn reduces risk and increases
The trick though is timing. Regardless of the rules you employ, timing
the rolls can help maximize the profit. Usually, you will look to roll
a short strike when there is little premium left in the current month
and rolling allows you to sell premium in a later month. When you are
farther away from expiration on the short strike, this is more
difficult to achieve.
It is also possible to roll the long strike. You might consider doing
this any time the delta drops to a certain level. You will be doing
this for a debit, but the idea is to
position yourself with additional
time in the trade as well as for a continued move of the underlying.
I talked about this somewhat in my 3/2/2010 IWM diagonal spread trade tutorial page.
Check out the 4/21 update. The key thing is to know and understand your
trading strategy well before trading with real money. I'd recommend
back testing and paper trading this approach before trying it in a real
I'd also recommend developing a clear trading plan for your diagonal
spread strategy that includes initial strike selection as well as when
and how to perform rolls.
Help me ensure we have an interesting question or two to respond to
next month. Submit your questions at this
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.
Were you surprised to see such strong buying this month? I was. I
expected to see a bit of a bounce but also expected to see some
re-testing or intermediate pullbacks.
In the October newsletter, I summarized my outlook as follows:
"...We have several things to pay attention to here. First of all,
the follow through. The chart shows the beginning of the bottoming
pattern. We really need this to continue and to see a move above the 30
day moving average before I'll consider being somewhat bullish again.
Beyond that, it would be nice to see the 30 day moving average act as a
support as well. That would coincide with a higher high and higher low
and would cause me to be fairly bullish heading into the end of the
year. Keep in mind that with
several days of strong buying there will
likely be some sort of pause. There is overhead resistance at the 30
day, 50 day and 200 day moving averages as well as around $2025..."
Here's how October played out.
certainly saw the bounce confirmed from the double bottom. We also saw
some extremely strong buying cycles with little to no pauses. And... in
a matter of one month, we've nearly erased all the losses seen in the
August sell-off. As you can see, the SPX blasted right through the 30
day, 50 day and 200 day moving averages with hardly a pause.
main thing that jumps out at me is that we are pretty strongly
overbought. It's quite unusual to see the price running well over $50
above the 30 day moving average. At the moment, we're closer to $80
above the 30 day moving average. It's hard for
me to see any
continuation without some sort of regression back to that moving
average. We can see a very brief test of the 50 day & 200 day
moving averages as support. As a result, we could see a test of any of
these. In fact that's what I hope for because they will offer great
entry points for bullish trades.
At the moment, I'm
included to be slightly bearish to neutral until I see some healthy
testing of the 30 day moving average. Once that happens, I'll be more
inclined to be bullish and look for good bullish trades.
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
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.
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.
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. Many know this is my go-to strategy for
After watching the video, I'm certain you will understand why.
- Understanding the construction and how the trade progresses
- Selecting the long & short strikes
- Planning entry
- 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