Subject: Finding Lessons in a Trade

 

Terrys Tips newsletter
     

Dear Friend,

Last week I told you about a bullish short-term bet we made on SVXY because the stock had dropped over $3 in the previous week (and historically, 4 out of 5 times when that happened earlier this year, the stock rose at least $3 in the subsequent week).  We placed an order to sell half the calls if they had doubled in price, and that occurred on Tuesday.  On Thursday, volatility soared due to the plane being shot down over Ukraine and Israel invading Gaza.  It looked like we would just break even on the trade since  we had recovered the initial investment, but then, on Friday, the stock rallied $6 and we were able to sell the remaining half for enough to give us a 32% gain on the trade.  Not as much as we had originally hoped, but a gain of any sort is always welcome.

Terry

 
Option Tip of the Week

Finding Lessons in a Trade:  

The big lesson from our experience last week, one that we have had many times, is that there is nothing wrong with taking all or some of your gains off the table when you can.  We were hoping for a 200% gain on the call purchase but sold half of our positions when the price had doubled.  This insured that we would break even at worst.  Anything we could sell the remaining calls for would be profit. 

If we had not taken the gain on Tuesday, it would have been a losing week.  As the old saying goes, the bears make money and the bulls make money but the pigs get slaughtered.

As I write this Monday morning, SVXY has fallen another $3.50.  Does that mean we should buy a short-term call in hopes that it will go higher by at least $3 in the next week?  Not necessarily.  This time around, the drop in SVXY (caused by a spike in options market volatility – VIX has gained 12% today) does not seemed to be caused by a specific world event like it was last Thursday.  This time, it feels like a growing unrest of the market in general is taking place, and volatility might not fall back as quickly as it did last week.  This time around, we do not advise making a bet that volatility will fall in the very short term.  Best to sit on the sidelines when a spike in volatility does not seem to have occurred from a specific event that will most likely be forgotten in a few days.

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I look forward to having you on board, and to prospering with you.

Terry

 


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Overbought/Oversold report
    Overbought/Oversold as of July 21, 2014

• S&P 500 (SPY) – 47.8(Neutral)
• Dow Jones (DIA) – 43.9 (Neutral)
• Russell (IWM) – 37.5  (Neutral)
• NASDAQ 100 (QQQ) – 57.4 (Neutral)
 
Testimonial of the Week

I have been auto trading your service since Oct 2011 and am pleased with the results  ~ David

     

Thank you again for being a part of the Terry's Tips newsletter. If you are interested in signing up as an Insider, visit Terry's Tips today for details.

Sincerely,
Dr. Terry Allen
Terry's Tips

 
 
Week 320

 July 21, 2014
 
In This Issue
Option Trading Idea of the Week
Overbought/Sold Condition Report
Testimonial of the Week
Terry's Book

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