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Dear Friend,
Today I submitted an article to Seeking Alpha that I would like to share with you.
Terry
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| Option Tip of the Week |
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How to Play the Google Earnings Announcement With Options
Here’s the link – Google Option Strategy
There are lots of ways to make money with multiple calendar spreads. Finding an underlying stock which enjoys an implied volatility (IV) advantage is a good start. If the options that you are buying have a lower IV than the ones you are selling, you are buying relatively “cheap” options and selling relatively “expensive” options.
A temporary IV advantage often arises in the few weeks before an earnings announcement. It is especially true when the company has a record of exceeding or falling behind analysts’ estimates by a larger-than-average amount. Apple (AAPL) and Google (GOOG) are two companies that fit in that category.
Google is slated to announce earnings just prior to the expiration of the October (monthly) options. Since a big move in the stock has historically often followed Google’s earnings announcement, the October options have soared in value (over double what they would be if an earnings announcement were not coming along). This causes a significant IV advantage to buying calendar spreads at this time.
While having an IV Advantage stacks the deck in your favor, it should not be used as a sole determinate in choosing an underlying instrument to trade options on. It is possible to make good returns with the 10K Strategy when you don’t enjoy an IV Advantage, but it is extremely helpful whenever option prices make it possible.
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 |
The S&P 500 closed the third quarter in positive territory on Friday. It marked the third positive quarter out of the last four despite suffering the biggest weekly decline since June. For the past three months the S&P 500 advanced 5.9%.
The major market benchmark reached its highest level since late 2007 this past quarter at approximately 1474 before pulling back. Will it have another run towards 1500?
Uncertainty remains over whether the stocks or better yet QE can continue to push this market higher amid a struggling economy.
As for this past week, the extreme short-term overbought readings in almost all of the ETFs I follow finally collapsed. Couple the overbought state with historical weakness that follows almost every expiration cycle and we should not be surprised by the decline this past week. Remember, corrections should be expected. The question is will we see a deep correction this time around or was the market performance this past week an anomaly in a strong up trending market. My guess, and yes it’s only a guess (I don’t have a crystal ball) is that the former will occur. But again, what do I know right? My philosophy is based on a statistical approach using probabilities, so I will leave the guessing to talking heads of the world.
Anyway, with the collapse came a decent decline in the major market indices. The S&P 500, Dow, Nasdaq and Russell lost -1.3%, -1.0%, -2.0% and -2.1%, respectively.
This past week was plagued by the resurgence of European economic woes. Although, has it really ever passed. Yes, I know the ECB president, Mario Draghi, essentially stated that the ECB will do everything in its power to keep the euro alive. The market took that as a positive. Unfortunately, with half of the Spanish banks needing further bailouts and bond yields climbing in a country who has had over 20% unemployment for longer than I can remember, maybe, just maybe, “everything” is not enough.
If the ongoing European woes were not enough for the U.S. stock market, more poor economic reports were released on our own soil this past week.
Chicago PMI, University of Michigan’s Consumer Sentiment Survey, Personal Income and GDP all were below economists’ expectations.
Next week, the bulls are hoping for a turnaround as we should see some clarification from Spain on its proposed bailouts. Does anyone think the news will actually be bad?
Moreover, we have Helicopter Ben due to speak on Monday and the FOMC minutes are due out later in the week. Oh yeah, I shouldn’t forget to mention that the ECB will also be meeting. But haven’t they been meeting every week for the past four years?
And the biggest number of them all comes out Friday. Non-farm payrolls for September are due out on Friday. Economists’ are predicting 115,000.
Next week could be a pivotal week for the market. If we continue to see weakness and a push below 1400 on the S&P we could be in for some difficult times, at least over the intermediate-term.
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| Overbought/Sold Condition Report |
Overbought/Oversold as of September 28, 2012
• S&P 500 (SPY) – 42.1 (overbought)
• Dow Jones (DIA) – 43.2 (overbought)
• Russell 2000 (IWM) – 33.2 (neutral)
• NASDAQ 100 (QQQQ) – 34.6 (neutral)
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| Testimonial of the Week |
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"I’m an auto-trader of multiple portfolios (7 currently). Naturally, my favorite days as a Terry’s Tips trader are those days where the profits come pouring in. My second favorite days, however, are days when the market is totally tanking, but the Terry’s Tips portfolios are experiencing only mild losses. ~ Mark
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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
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