ETFs Back in a Short-term Neutral State

All of the ETFs I follow are back in a short-term neutral state. The two day rally has pushed all of the ETFs I follow back into a neutral state from the extreme oversold readings reached late last week. So, in terms of an edge, there really isn’t one based on the high-probability, mean-reversion indicator I follow for my two options strategies.

However, the market is currently entering one of the strongest seasonal periods of the year and a Santa Claus rally look imminent. As a result, I am short-term bullish on the market.

I will be back later with more details, but I wanted to get out my indicators sooner than later.

As always, please feel free to contact me with any questions or comments that you might have.

Kindest,

Andy

I will be back later this weekend with more options related info. Stay tuned!

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Is This the Beginning?

A Few Random Thoughts

I can’t remember how many times I have seen 300 point opens in the Dow futures.

The rally today was strong. The talking heads will attribute the advance to Europe or a piece of economic data, but in reality the pop came on the heels of one of  the lowest short-term oversold readings in years. As a result, the probability of a short-term advance was extremely high.

Last week the market lost over 4% in just over 3 1/2 days on extremely low volume. The entire move displayed very little conviction.

Bullish? Yes, I think this move could extend itself for several weeks as Santa Claus and his typical holiday rally looks imminent. Add the fact, that seasonally we are entering one of the strongest periods of the year and I think we could see a decent short-term rally that could last into the first few days of December. There are a few large gaps on the upside in most of the major indices so I think the market is more prone to take  out the gaps before we possibly see more weakness.

One thing is certain, the next few days should be quite revealing, but moreover, fun. Yes, fun. It is not often that I am bullish, so it is kind of nice to actually have some short-term conviction to the upside.

I will be back later this weekend with more options related info. Stay tuned!

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Kindest,

Andy

The Market Moves Further Into and Oversold State

The market has pushed into one of the most short-term oversold states that I have seen in quite some time. Almost every ETF I follow is now in a “very oversold” state with RSI (2) readings below 5 and over half below 1 – a rarity indeed.

So, now is the time that I want to be aggressive on the long side, but only for a few trading days. Conditions like the aforementioned almost always work themselves back to mean-reversion and I want to be a participant when the short-term occurs. I already have several trades on in both of my options strategies and plan on adding several more over the next few trading days, that is unless we see an enormous bounce before the opening bell Friday, which I think is highly doubtful.

It is during times like these that wealth is truly built.

I think Tom Sosnoff says it best - ”The trend is your friend but the fade is the ultimate wealth builder”

And the fade is exactly what I will continue to do in both of my strategies. Yes, both strategies will suffer losses on occasion, it is to be expected. There is no holy grail, no guarantees in trading. You just have to stay disciplined and keep doing the things that have led to your success and with a return of over 40% in the High-Probability, Mean-Reversion strategy since its inception one year ago and over a 13.0% return per trade in the Theta Driver options strategy Too often newbie traders start a new strategy only to give up on it after a few months, particularly if losses occur. They don’t realize that a strategy with longevity and a proven track record works over the long-term and that rough patches will occur. They occur with every strategy. I feel very comfortable continuing to fade the short-term extremes. Sometimes you have to feel some pain as a trader, but this is when you need to be incredibly focused and remain diligent in your approach. If not, you will inevitably fail.

No one ever said trading was easy. It is one of the most difficult endeavors you will ever take which is why most traders fail.

Every trader has there own approach. Mine – I use short-term extremes in the market to sell credit spreads (which gives me some margin for error if the move continues to push in the same direction) and I also buy calls/puts to fade short-term extremes. I have been doing this for well over a decade now and will continue to do so until I am no longer capable of pushing a button to place an order. I hope you will join me on my life long journey of building wealth in the only way I know how –  a “logical, intellectual and strategic way”.

I will be back later this weekend with more options related info. Stay tuned!

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High-Probability, Mean-Reversion Indicator – Short-Term Extremes Reside

I will be back later with a more thorough account of the day and my thoughts as we head towards the holiday. For now check out the short-term extremes in the market. A bounce looks imminent.

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The Market Presents Another Short-term Opportunity

I am going to keep it very short tonight. I think my High-Probability, Mean-Reversion chart says it all – a short-term bounce (1-3 days) is imminent.

Yes, the market has pushed into a short-term oversold state and as a result, I have been trading like mad in both of my options strategies. As a contrarian, it is times like these that I feel most comfortable taking a position.

When the ETFs I follow have RSI (2) readings below 2 and followed by a gap lower in the market I am perfectly comfortable adding exposure through directional plays like calls and of course, selling bull put spreads.

The market doesn’t offer this type of set-up often, so I have to take advantage of the short-term condition while it lasts. Oftentimes, traders will shy away from short-term oversold/overbought conditions because they feel like market conditions can become even more extreme, but when you use options you have the power of allowing yourself room for error, particularly when selling vertical spreads.

If you haven’t already, don’t forget to sign-up for my :

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The Sell-Off Continues – Several ETFs in a Short-Term Oversold State

 The market continued to sell off today and as a result we have several short-term oversold readings in the high-probability, mean-reversion options indicator.

So, with options expiration tomorrow and several oversold ETFs I WILL be making a few trades in one or both of my options strategies. So subscribers stay tuned.

For the rest of you here are the short-term overbought/oversold readings. As always feel free to email me if you have any questions or comments.

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The Perfect Environment for Selling Options Premium

Let the selling continue – the selling of options premium.

Implied volatility remains high as the market remains anxious about the next piece of news. You can thank the Eurozone for the heightened VIX. At 30, the investor’s fear gauge affords sellers of options premium the opportunity to create spreads with incredibly high (by historical standards) premium.

Premium affords investors/traders the ability to increase the risk/reward of their respective trade in various ways and I am a high-probability trader in every sense of the term. So as one could expect, this environment lends well to my Theta Driver strategy . I sell premium, mostly through out-of-the-money vertical bear calls and vertical bull puts, but more importantly the trades all have a high-probability of success. When I say, a high-probability of success the short strike has a very low delta. And a strike with a  low delta means that the market views hitting that strike as highly unlikely. Basically, a delta of say .08 (as seen on the TOS platform) has roughly an 8% chance of hitting that strike or as I like to say a 92 % chance of success. And this is the exactly the type of trade that I like to make in the Theta Driver strategy.

I will discuss how I use a high IV in highly-liquid ETFs  in greater detail over the next several weeks. Stay tuned!

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High-Probability, Mean-Reversion Options Indicator

Nothing has changed since last Friday. My hope is that we see a short-term extreme very soon in one of the ETFs we follow in our options strategies. I will be back tomorrow with a few more posts. Stay tuned!

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Options Expiration is Upon Us

As we enter the week of options expiration the bulls and bears are playing a fierce game of tug of war.

Europe, more specifically the Euro (FXE), continues to be the leading factor of the huge daily swings and until it is resolved I expect  we will see similar price action going forward.

While, four of the five last trading sessions were positive we had an absolutely ugly day on Wednesday and one that could be a precursor of things to come as we move into 2012.

The move came as the Italian bond rate pushed above 7%, which many see as a threshold for inevitable Italian default. However, many economists and banks have come out with thresholds far lower than 7%.

The loss on Wednesday was the worst one-day percentage drop for the S&P 500 in about three months. Many were spooked by notion that Italy’s economy is far too large to be aided by a bailout.

In my opinion, if you actually sit down and do the math, you will clearly see that Europe is in a dire situation. How can they possibly afford to pay for defaults in four to five European economies? The answer – they can’t. At this point they are just kicking the can down the road and hoping for a miracle.

So, after the stark realization that a bailout in Europe seemed frivolous Wednesday and the significant plunge, why did we see such a significant turnaround Thursday and Friday?

Europe must have received funding from the BRIC countries? Japan? China? Buehler?

Nope – none of the above occurred. What did occur is that Greece and Italy changed leaders.

So, let me get this straight, the European markets are on the brink of complete failure and now that we have two new leaders in the two European countries that are, in many economists opinions too far gone, the market is going to rally and rally hard?

It truly doesn’t make sense and quite honestly I am not going to try and make sense of it. It is a futile effort and one that is completely out of my control.

During times like these you have to remain diligent. Volatility remains high, so selling premium is advantageous. Moreover, if we get a sharp decline going forward volatility will surely increase and inflated premium will follow. I love this type of market environment. Uncertainty allows options sellers to sell premium at far higher prices than they would otherwise be able to when the VIX is trading at its historical norm around 15.

I had another very good trade in the High-Probability, Mean-Reversion strategy this past week and if all goes well the strategy should finish up its first year (since being monitored by a third party website) up over 40%. Not bad considering the market is barely treading water.

As for the Theta Driver strategy we should have another good trade about to expire this week I added a new December position this past week with the likelihood that I will be adding another this week. Stay tuned!

Technically speaking, all of the major indices are currently in a short-term neutral state so there really isn’t an edge there.

Mid-November is historically very weak and then the bullish bias picks up a bit as we head into the Thanksgiving holiday. I would expect to see the same this year.

One thing is certain the upcoming week of options expiration will be an eventful one. I, for one, can’t wait to see how it plays out.

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Do You Want to Make Money?

Change the way you invest!

Hundreds of thousands of money managers don’t understand how to manage money effectively. People blindly giving professional money managers that are not able to articulate the strategy they use to make the money they claim to make. It frustrates me beyond belief to hear professional money managers talk about a stock and their respective fundamentals and why you should should just blindly buy the stock based on their recommendation. No strategy talk whatsoever. Just blindly believe them and buy. Yet, they only have a 50/50 chance of success picking stocks and have no idea how to use options to increase their odds of success.

I would never and I repeat NEVER even speak with a money manager if they were not skilled in various options strategies. How can they effectively manage my risk or take advantage or certain market conditions (high volatility,etc.) if they are unable to appropriately use various options strategies for various market conditions. Without the knowledge of the basics of options such as the greeks, they are just blindly rolling the dice.

I want to know what my probability of success is before I enter a trade. In my Theta Driver Options Strategy I am able to do so.

I will explain how I do create my probability of success with each and every Theta Driver trade in my upcoming Free Weekly Report . Stay tuned.

High-Probability, Mean-Reversion Options Strategy

Yesterday, towards the end of the trading day I purchased a few USO puts for the HP-MR options strategy. The RSI(2) of the underlying ETF had pushed above 96.5, a short-term overbought extreme, so I decided to buy the Dec11 39 puts for $2.84. This morning USO pushed lower and I was able to make a quick 12.6%. This is how the HP-MR options strategy works. I take advantage of short-term overbought/oversold extremes by fading the short-term trend.

The end of November will mark the first full year of the strategy being monitored by a third-party auditing service and so far, so good. Over the course of the past year the strategy has made gains in excess of 40%, 42.2% to be exact. Most newsletters don’t have the cojones to keep close tabs on their performance and I would argue if they are not able to present you with an accurate assessment of how their strategy has performed then you should not bother using their newsletter service. My theory has always been that if I am unable to present an options strategy that is profitable over the long-term then I should not be doing this as a profession. My performance is the metric by which I measure my success and my performance speaks for itself. I do not market, I do not tout outlandish gains and some believe this not how I should effectively run a newsletter service. Yes, I will lose out on a few potential subscribers by not taking that avenue, but I truly believe in the power of grass roots marketing and I strongly believe that if my options strategies are successful and do well by subscribers then more will come.

My goal is not to have thousands of subscribers. My goal is to have a few hundred subscribers across several options strategies so that I can effectively answer each and every email and teach each one of my members how to become an effective self-directed investor through the appropriate use of various options strategies.

I hope all of you have a wonderful night and please do not hesitate to email me if you have any questions.

If you haven’t already, don’t forget to sign-up for my :

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