| |
|
|
|
Dear Friend,
Today I would like to discuss what I believe is the perfect hedge against a general market melt-down. Of course, it involves trading options. It is an options strategy designed to double in value if the market crashes. Even better, it should also make decent gains if the market drifts along or moves moderately higher.
Terry
|
| |
|
|
 |
|
 |
| Option Tip of the Week |
|
The Ultimate Protection Hedge Against A Market Crash
Like death and taxes, market crashes are inevitable. Unfortunately, most of us have no idea when one might come along. How were you feeling in the fall of 2008? The market was imploding and wiping out years’ worth of savings and investment gains for all of us. Wouldn’t have been nice to own something that would have gone up by a greater percentage than your portfolio losses?
Perhaps the most popular form of acquiring downside portfolio insurance is just to buy puts on the S&P 500 tracking stock (SPY). If the market falls, your puts will increase in value and you will make a gain once the puts have gone up enough to cover what you paid for them.
The problem with buying puts is that they are expensive. Some studies have estimated that over 80% of all options that are purchased (puts or calls) expire worthless. That means that the great majority of the time, you will lose 100% of the money you shelled out to buy the put.
That doesn’t should like a very good investment idea to me. The odds don’t seem to be in my favor.
Another way to protect against a market crash is to sell stock short. Presumably, if the market crashes, your stock will be part of the crowd and you will make some money instead of losing everything.
Of course, there is a problem with selling short as well. The problem may not be as great as buying puts. If the stock stays flat, at least you don’t lose anything by having sold it short. Maybe you wouldn’t lose 80% of the time.
But the fact remains that most of the time, stocks go up instead of down. For about 70 years, the market in general rose an average of almost 10% a year. That number is expected to be much lower in the future, but there is still an upward bias to most stocks most of the time.
Maybe you will be lucky enough to pick a stock that goes down after you have sold it short. But you probably know that I believe trying to pick any individual stocks is pretty much a losing proposition, no matter how smart you think you are.
Here is the link to the options strategy report designed to protect against a market crash. It is not a simple strategy, but should be extremely effective (and be far more likely to succeed that either buying puts or selling stock short):
The Ultimate Protection 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 was a strange week for the market.
The devastation that Hurricane Sandy left behind caused the market to be closed for two trading days...a rare occurrence indeed. The historic two day market closure on Monday and Tuesday was the first time the stock market had closed for two straight days because of a weather-related event since 1888.
Most of the week centered on Sandy-related coverage, followed by the upcoming Presidential election and lastly a few market-related events.
The one market-related event that everyone was interested in was Friday’s non-farm payrolls. The report exceeded economists’ expectations. An increase of 171,000 in October was certainly a nice surprise. The jobless rate ticked up to 7.9% as more workers restarted job searches, a positive signal for the economy.
But the storm-shortened week could not hide the bleak earnings picture.
According to Thomson Reuters data through Friday, of the 378 companies in the S&P 500 that have reported earnings so far, 61.9% have beat expectations, in line with the 62 percent quarterly average since 1994.
However, the revenue picture is well below average, with only 38.2% of companies having posted revenue above expectations, well below the 62% quarterly average since 2002 and the 55% average over the past four quarters.
This could spell trouble as we head into the 2013.
But as I stated last week, trouble or better-said investor fear can actually be a positive for those of us who use options selling strategies like Terry’s 10k strategies. More fear equates to a higher options premium which means that we are able to make a higher return on our capital while potentially increasing our margin for error. As long as the market doesn’t spike directionally (lower or higher) we could be in for a very nice environment for selling premium over the next several months.
Which brings me to Apple. The spike lower over the past several months has accelerated recently with Friday showing a 3.3% loss or roughly 19 points. For investors solely focused on a company's fundamentals, it can be incredibly frustrating to watch a stock sell off in a major way with no clear breakdown in the company's health to blame for the sell-off. The recent 18.5% pullback from its 52-week high and 9.9% drop from early October would certainly be an unwelcome event for anyone recently putting new money to work in Apple. The sell-off led to a breach of its 200-day moving average ($588) for the first time since November of last year.
But the good news is that the stock has reached an area of very strong support coupled with an extreme oversold state. Typically, when we see these two items together a short to intermediate-term reprieve rally occurs. A bounce back to 600 is anticipated and then another reevaluation of the stock if it reaches that level.
Obviously, the concern with Apple is the fact that as Apple goes the market goes, especially the tech-heavy Nasdaq 100. But, with the tech-behemoth losing over 18% in a fairly short timeframe I am confident that the selling slows down over the next week or so. As I stated before, the odds are with the bulls over the short to intermediate-term so we will see soon enough if the bulls can muster another push into the New Year.
|
|
|
|
|
|
|
|
| Overbought/Oversold report |
• S&P 500 (SPY) – 45.3 (neutral)
• Dow Jones (DIA) – 48.2 (neutral)
• Russell 2000 (IWM) – 63.1 (neutral)
|
|
|
|
|
|
|
|
| Testimonial of the Week |
|
This year has been good, thanks to Terry's Tips. I am involved in an investment club. I told them about your service. One of the guys has recently signed up. Thanks so much. ~ Jerry
|
|
|
|
|
| |
|
|
|
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
|
| |
|
|
|
|
|
