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Dear Friend,
I am pleased to offer the 2012 ebook version of Making 36% for only $2.99. This is your chance to learn everything you need to know about options (ok, maybe almost everything) for a lower price than ever before. Order here and use the code e299. The order form will say that you will receive the 2011 paperback edition but if you use the e299 code, you will receive the 2012 ebook instead. (The revised 2012 paperback edition will be available in about two weeks if you would prefer to wait and get the hard copy at the regular price).
Even if you have purchased an earlier edition of my book, you might want to see the new version. Two new important strategies are spelled out for the first time – the 10K STUDD (Short Term Ultra Double Diagonal) and the Calendar Twist (a new approach to placing calendar spreads). Either strategy might change everything you ever thought about trading options.
Terry
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| Option Tip of the Week |
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How to Make a Portfolio of Calendar Spreads Either Bearish or Bullish:
At Terry’s Tips, we use an options strategy that consists of owning calendar (or diagonal) spreads at many different strike prices, both above and below the stock price. Six of the eight actual portfolios we carry out use SPY as the underlying so we are betting on the market as a whole rather than any individual stock.
We typically start out each week or month with a slightly bullish posture since the market has historically moved higher more times than it has fallen. In option terms, this is called being positive net delta. Starting in May and extending through August, we usually start out with a slightly bearish posture (negative net delta) in deference to the “sell in May” adage.
Any calendar spread makes its maximum gain if the stock ends up on expiration day exactly at the strike price of the calendar spread. As the market moves either up or down, adding new spreads at different strikes is essentially placing a new bet at the new strike price. In other words, you hope the market will move toward that strike.
If the market moves higher, we add new calendar spreads at a strike which is higher than the stock price (and vice versa if the market moves lower). New spreads at strikes higher than the stock price are bullish bets and new spreads at strikes below the stock price are bearish bets.
If the market moves higher when we are positive net delta, we should make gains because of our positive delta condition (in addition to decay gains that should take place regardless of what the market does). If the market moves lower when we are positive net delta, we would lose portfolio value because of the bullish delta condition, but some or all of these losses would be offset by the daily gains we enjoy from theta (the net daily decay of all the options).
Another variable affects calendar spread portfolio values. Option prices (VIX) may rise or fall in general. VIX typically falls with a rising market and moves higher when the market tanks. While not as important as the net delta value, lower VIX levels tend to depress calendar spread portfolio values (and rising VIX levels tend to improve calendar spread portfolio values).
Once again, trading options is more complicated than trading stock, but can be considerably more interesting, challenging, and ultimately profitable than the simple purchase of stock or mutual funds.
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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
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| Andy's Market Report |
Investors celebrate. The market managed to have its best performance of the year shortly after experiencing its worst week only a few short weeks ago. There is no doubt that volatility has picked up and that we should expect to see more of the same as we move into the summer doldrums.
For the week, the Dow advanced 3.6%, the S&P 500 rose 3.7% and the Nasdaq jumped about 4% - their best weekly percentage gains since December.
As I stated several weeks ago the big picture hasn’t changed. Greece, Spain, Portugal, Ireland and Italy continue to suffer mightily. The uncertain economic picture surrounding Greece and Spain is absolutely frightening for investors. Will Greece default? Could investors make a run on the banks in Spain? The fate of Greece could be known very soon as elections ramp up again as they are due to be held on the 17th of June.
Spain is expected to ask the euro zone for help with recapitalizing its banks, a deal that could ease markets' most immediate concern about the region's financial crisis. However, this could also ultimately lead to the euro zone’s demise.
"All eyes are on what will happen with Spanish banks over the weekend. The level of uncertainty is high and the fear in the market has certainly elevated," said Amy Wu, equity derivatives strategist at RBC Capital Markets in New York.
But again, as I stated several weeks ago we also have our own economic concerns to worry about here in the United States.
Wall Street has been hit hard by other concerns, including signs of a slowdown in U.S. growth and shrinking demand in China, the world's No. 2 economy.
The major market benchmark S&P 500, fell 6.3% in May, its largest percentage drop since September. The Dow's 6.2% drop and Nasdaq's 7.2% loss in May were their largest monthly declines in two years.
Technical Mumbo Jumbo
On June 1 the S&P 500 ended below its 200-day moving average for the first time this year, but the index clawed its way back above the key level and rallied later in the week on hopes Europe would find solutions to its problems.
If the 200-day breaks again in the weeks ahead we could be in for a long summer. We have already seen the “sell in May” effect reach historic proportions during the first few weeks of existence this year, but the slide could become significantly worse if the 200-day is broken. Watch this area closely!
As it stands the congestion area lies between what has become a fairly tight range of 1290 to 1355-60 on the S&P 500. I expect to see a widening of the range as we move throughout the “summer doldrums”.
The Week Ahead
The economic calendar next week includes data on the Producer Price Index and retail sales on Wednesday. Reports on the Consumer Price Index and initial weekly jobless claims are set for Thursday. Data on Friday includes the Empire State manufacturing index, U.S. industrial production and the preliminary reading for June on consumer sentiment from the Thomson Reuters/University of Michigan surveys. |
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| Overbought/Sold Condition Report |
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Overbought/Oversold as of June 8, 2012
S&P 500 (SPY) – 56.3 (neutral)
Dow Jones (DIA) – 52.1 (neutral)
Russell 2000 (IWM) – 57.1 (neutral)
NASDAQ 100 (QQQ) – 63.4 (neutral)
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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
P.S. For a limited time, you can get the 2012 eBook version of my book Making 36% for only $2.99. Order here and use the Discount Code e299. It may change everything you ever thought about investing.
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