| |
|
|
|
Dear Friend,
A week ago I gave you details on how to use stock options to create the perfect hedge against a market crash. Last Monday, a mini-crash took place. It was the worst day for the market all year. While the market (SPY) fell 2.3%, VXX rose 7.6%. The Crash Control portfolio I set up as a hedge against a crash gained 18%, and is poised to gain at an accelerated rate if the market continues to fall.
The market totally vindicated my analysis.
First, the high inverse correlation between VXX and the market came true, and the options strategy we set up using VXX as the underlying had a high correlation with the price of VXX. So when the market tanked, the Crash Control portfolio prospered.
The great thing about this market-hedge options portfolio is that it is designed to make a small profit even if the market doesn’t crash. It’s like buying insurance and getting a settlement even though the bad event that you bought insurance for didn’t actually happen.
Terry
|
| |
|
|
 |
|
 |
| Option Tip of the Week |
|
A Timely Test of the Ultimate Hedge Against a Market Crash
The link to the follow-up on the options market hedge strategy is:
A Timely Test of the Ultimate Hedge Against a Market Crash
I suspect you will find this market-crash options strategy is so complex that you would be happier just subscribing to Terry’s Tips, sign up for Auto-Trade, and have thinkorswim execute the trades for you in your account.
----
Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.
You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
I look forward to having you on board, and to prospering with you.
Terry
|
 |
|
 |
|
|
|
|
| Andy's Market Report |
It has been a rough couple of weeks for the market.
In fact, this past week was the worst week for the markets since early June.
The S&P 500, Dow, Nasdaq and Russell 2000 closed the week lower -2.4%, -2.1%, -2.6% and - 2.4%, respectively.
The major media conglomerates would have you believe it the recent decline was due to the catastrophic aftereffects of Hurricane Sandy, the election or the fiscal cliff. However, I would argue that market as well overdue for a correction.
There is no doubt that the fiscal cliff could have quite the impact on the economy if our elected officials decide to do nothing. But, I seriously doubt that will happen as it would certainly be political suicide.
But, look at the three-year chart above. The major market has moved substantially (roughly 45%) since the lows of July 2010 and over 100% since the bottom hit in March 2009.
Corrections happen. It’s part of the natural cycle of any market. Just like we need a rest after a long-run, the market needs the same.
But, now where do we stand. Panic is setting in, at least from the talking heads. The end is near according to many of the doom and gloom analysts like Marc Faber who is calling for a 50% decline.
Unfortunately, if you apply an actual statistic to that happening by year end it would fall into the less than 1% category. And unlike Faber’s fuzzy logic predictions the less than 1% is based purely on a binomial model, no personal biases here.
The real story of the week is the latest demise of Apple. The tech-behemoth is starting to see some holes in the wall. But just like the overall market, when we see the type of advance that Apple has experienced over the past couple of years we should expect to see a pullback. It just isn’t realistic to think that any stock, particularly the U.S. economy’s largest, to advance approximately 75% since the beginning of the year without some sort of pullback.
There is no doubt that Apple has seen quite the haircut lately. The stock has lost a little over 20% since the announcement of the iPhone 5 back I late September. But now the stock has reached an area of very strong support around the 540-545 area.
Furthermore, we are witnessing one of the most oversold states in the stock’s history. Typically, when we see this type of reading a short-term reprieve is right around the corner. We saw a glimpse of that on Friday as Apple bounced from Thursday low to above the 545 area. If this area can hold early next week I think we just might see a push back up to 580-600 level.
And that leads to my thoughts on the market as a whole.
There is lots of noise in the market right now. As I said before the travesties of Hurricane Sandy, the election and now the fiscal cliff are keeping the talking heads busy. If we push all of that aside and look at where the market stands now, we can easily see that the market is in an oversold to very oversold state. Now mean-regression kicks in and like Apple the overall market is due for a bounce.
We are entering one of the most bullish seasonal periods for the market. It’s hard to be a bear as we head into the triple witching that resides within the December expiration cycle.
But, again I just want to keep it simple. When we see an oversold to very oversold in all of the major indices the odds of a move to the upside increases dramatically – again it’s just mean- regression at work.
|
|
|
|
|
|
|
|
| Overbought/Oversold report |
Overbought/Oversold as of November 10, 2012
• S&P 500 (SPY) – 23.2 (oversold)
• Dow Jones (DIA) – 21.2 (oversold)
• Russell 2000 (IWM) – 20.4 (oversold)
• NASDAQ 100 (QQQQ) – 19.8 (very oversold)
|
|
|
|
|
|
|
|
| Testimonial of the Week |
|
I'm very satisfied and impressed with the autotrading as it's gone to date. I couldn't possibly keep on top of the adjustments as you do. I monitor the TOS risk graphs daily and enjoy reading the Saturday Reports.
- Walter
|
|
|
|
|
| |
|
|
|
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
|
| |
|
|
|
|
|
