Back to Neutral – No Edge as the Market Approaches the Week of Options Expiration

The short-term status is back to neutral in every major benchmark and sector that I follow on the blog and in my options strategies. This means that I will be sitting on the sidelines as we move in to the week of options expiration. If I can’t find an edge, which means the risk/reward doesn’t suit my liking then as you all know from my past experience I have no problem sitting on the sidelines. Cash is a position.

In trading patience is a requirement.

Several months ago I came across an article by a fellow trader named Mike Kestler. His statements coincide with the trading philosophy of the options strategies that I follow within my service and moreover, my trading style.

“Without patience traders get pulled into an endless cycle of over trading, sub par entry points and losing trades. Most traders get drawn into trades that do not fit their trading style because they are just plain bored and looking for something to trade. With patience, it is easier to have the courage and fortitude to execute the proper trade. If a trader has had the patience to stay away from the less than ideal setups, he or she will be able to have the strength and focus to execute on the higher probability trades. As a trader, you have to have the inner strength to pounce on the opportunity when it presents itself.”

Patience is the key. Opportunities are made up easier than losses, so if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Remember, trading is a marathon and not a sprint.

I will continue to patiently wait for opportunities to arise and only trade scenarios where the probability is overwhelmingly on my side. That means trading extremes. This certainly does not guarantee a successful trade, but it definitely makes for a favorable one. This is evident in the performance of the ETF Extremes strategy that I have been following in this service for over two years.

• The NASDAQ 100 (QQQQ) closed near the highs of the day so we could potentially see a signal in the Gap Fade strategy on Monday of the market opens to the upside.

• Also, the Sector ETF Extremes begins on Monday. IF you would like to know more you can read about it here, or do not hesitate to email us. I traded this on a trial basis for my subscribers and the results were overwhelming. The foundation of the strategy rests on the same basic guidelines as the ETF Extremes but using sector ETFs as the underlyings of choice. This should make for a bit more action that the other two strategies that I currently follow so a sound position-sizing technique coupled with risk-management will be imperative for the long-term success of this strategy.
• Charles Kirk ponders the question “What do you do for a living?”

Have a wonderful and hopefully sunny weekend!

Andrew Crowder, Chief Options Strategist, Crowder Investment Research, LLC (www.crowderoptions.com)

Short-term Overbought/Oversold Levels for June 13, 2008

ETF Extremes Options Strategy

• S&P 500 (SPY) – 38.2 (neutral)
• Dow Jones (DIA) – 49.4 (neutral)
• Russell 2000 (IWM) – 51.1 (neutral)
• NASDAQ 100 (QQQQ) – 47.3 (neutral)

Sector ETF Extremes Options Strategy

• Biotech (IBB) – 47.8 (neutral)
• Consumer Discretionary (XLY) – 55.6 (neutral)
• Health Care (XLV) – 40.8 (neutral)
• Financial (XLF) – 47.3 (neutral)
• Energy (XLE) – 51.4 (neutral)
• Industrial (XLI) – 41.2 (neutral)
• Materials (XLB) – 56.2 (neutral
• Real Estate (IYR) – 48.2 (neutral)
• Retail (RTH) – 59.5 (neutral)
• Utilities (XLU) – 57.1 (neutral)

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