S&P 500 Iron Condor Update

This is a tough market to trade!

Yes, I am watching the market activity with particular interest. With my bear call spread feeling the heat from a fledgling rally, I have been particularly interested.

Some of the heat was taken off of my bear call spread today, with the S&P 500 seeing a distribution day. The index sank 0.8% on rising volume with the help of inflationary concerns and the Iranian government.

So, what's going to happen? I honestly do not know. I follow my rules. I trust my judgment when I don't have an open position.

The market remains in a confirmed rally. Today, March 28th, counts as a distribution day, but the rally is still intact. Whether it remains so, depends upon what happens in the days to come.

Christopher Smith
TheOptionClub.com

S&P 500 Iron Condor and a Potential 21% Profit...

Yesterday, we had another weak profit report by a home builder, Lennar (LEN), a sharply lower consumer confidence reading, and troubling oil prices. The S&P 500 and Dow industrials shed 0.6% each. The small-cap S&P 600 gave up 0.7%. This selling was on lighter volume, however.

The half-point drop in the S&P 500 was certainly a welcome event for my 1,460 - 1,470 bear call spread. During this consolidation I managed to open a 1,365 - 1,355 bull put spread, rolling into an iron condor for an additional 60 cents credit. That boosts the total credit to $1.80, providing now for a maximum return of $1.80 / ($10 - $1.80) = 21.9%.

The market has opened to the downside this morning. My position delta on the newly formed iron condor is negative, so some additional selling is not of great concern.

Mind your risk!

Christopher Smith
TheOptionClub.com

S&P500 In A Confirmed Rally

On Friday, March 23, 2007, stocks ended mixed on lower volume, with the NASDAQ giving up 0.1% and the S&P500 and S&P 600 gaining 0.1% and 0.4%, respectively. However, this mixed trading session capped the market's biggest gains in more than 6 months.



This last week saw gains of 3.2% on the NASDAQ, 3.5% on the S&P 500, and a monster 4.1% gain on the S&P 600. These gains took place with oil trading above $62 per barrel and while the Iranians captured British Marines and naval vessels.

The overall market is in a confirmed rally. Confirmation came on Wednesday when we saw higher price gains on increased volume. Wednesday also saw the S&P500 push through resistance around 1,410 and retake its 50-day moving average at 1,424. The S&P closed on Friday at 1,436.

If this market rolls over and continues the downward trend initiated back on February 27th, the next price target would be about 1,350. This area constitutes about a 50% price retracement from the start of the last rally in July '06.

The question is whether the rally will continue to achieve new price highs. The prior high was at 1,460, which a week ago seemed like safe ground for an April bear call spread. I am not convinced that the market will take this ground by April expiration, but our adjustment trigger is lower than that.

Our plan right now is to continue monitoring the market, looking for an opportunity to open a bull put spread. If the market continues to consolidate its gains, we may have an opportunity to close our call spread for a price near what we received when it was opened. If that occurs, it may be a prudent move to take advantage of it and preserve our capital.


Good trading!

Christopher Smith
TheOptionClub.com

Possible Adjustment of SPX Credit Spread

We are seeing some buoyancy in the market, which is not forcing an adjustment to the bear call spread but just making for a mild level of anxiety. Our adjustment trigger is in place and, given the opportunity, a put spread can be sold to enhance the credit for this trade. What we are waiting to see is whether the market loses upward momentum here.

Also, Karen Guerra, Larry McMillan's assistant, got back in touch with me. She and Larry have "sweetened the deal" for my readers. You may recall that we were offered a pretty good discount on a live seminar with Larry McMillan. Well, they are also throwing in Larry's $599 DVD home study course at no charge. All the details are here:

Larry McMillan Seminar Discount

Or, just call them at (800) 724-1817 and tell them you're a member of TheOptionClub.com.

Good trading!

Christopher Smith
TheOptionClub.com

SPX Follow Through

Yesterday, we had a follow-through day.

Trading was timid in advance of the Fed announcment. At 2:15 p.m. ET, the Fed announced it was leaving its Fed Funds rate unchanged for a 6th consecutive time.

That was expected, but what investors focused on was a change in the central bank's policy remarks. No longer was the Fed warnings that "additional firming that may be needed." The statement was not particularly benign, because they also commented that core inflation has been "somewhat elevated."

Nonetheless, buyers flooded the market. The follow-through causes us to shift our market view from a correction to a confirmed rally.

The S&P 500 added 1.7% and volume increased.

This is good news for bullish investors, but now the tables have turned and the secure feeling of owning a 1,460 - 1,470 bear call spread is gone. With the SPX having added 24 points yesterday, and now at 1,435, we must be wary of the need for a possible adjustment if the buying continues.

My nighlty MarketClub market report confirms this analysis, noting that the high-range close, as well as bullish Stochastics and RSI, are signaling that sideways to higher prices are likely near-term. Longer term, the S&P 500 is noted to be in "Sidelines Mode."

This is a very useful service because MarketClub compiles a tremendous amount of information from the equity markets, future markets, commodities and currencies to provide you with an overall sense of where things are headed. While I still read my own charts, the service provides a source of confirmation.

Needless to say, we now need to think about hedging our bearish position and will begin to consider the alternatives available to us. With four weeks between us and expiration, there is a lot that can happen. It is best to be prepared.

Christopher Smith
TheOptionClub.com

Credit Spread on the SPX

With the SPX hovering near break even today there is little to discern. Yesterday's advance was again on unconvincing volume.

A bullish spread is not being sold right now, but may be entertained if we see the market trade lower. The bear call spread has lost a significant amount of value in both options, a reflection of both theta and falling implied volatility. It is not ready to be closed, and probably will not be ready for a few weeks.

Good trading!

Christopher Smith
TheOptionClub.com

Is The Stock Market Correction Over?

We saw a big move yesterday and the market is advancing again today. I would love to jump on the bandwagon and tell you that the correction is over and that we can all get bullish again.

The problem is that we're not all getting bullish. Yesterday's advance did not have the robust volume behind it that accompanies institutional buying. Watch today's volume to see if the big guys are jumping in.

If this rally attempt fails to carry through, we could see a new low. You want to remain cautious for that reason.

Christopher Smith
TheOptionClub.com

Quantum Swing Trader

On Thursday, March 27th one of my favorite trading courses will be re-released and made available for purchase. I am privileged to own a copy of what has been considered by many traders to be one of the best stock trading courses ever released to the public last year.

Everything about it is first class... and easy to understand.

I'll have more information to send you about it on March 27th, but for now I've been granted special permission to give you private access to the Members Website Preview so you can get 'up close & personal' with this trading course before the rest of the trading community gets a chance.

http://www.theoptionclub.com/qst_preview.php

The author of the course is only releasing 200 more copies from March 27 to April 4...

The limited release is designed to allow Bill Poulos to provide each of his Quantum Swing Trader students with the support that they deserve. If he did not limit the number of courses being delivered to the trading public, there just is no way he could devote the time needed.

This course has always sold out, through each of the four releases to date.

You can get a "sneak peek" before it is released, however. Bill Poulos is letting me give you complimentary access to his Members Website Preview, but only until March 27th when the course is offered for sale.

Bill wants to weed out the "tire kickers" so that only the traders who are truly serious get a copy of the course. On March 27th the Members Website Preview closes down and re-opens only for students of his trading course.

There are all sorts of goodies in the preview site, including preview access to his Profit Feeder service where you can get daily lists of stocks that have met his rigorous search
criteria. In fact, these are stocks that have a high probability of entering into potentially profitable positions. This preview feed gives you a taste for the same service he charges $97/mo for.

But don't take my word for it. Go ahead and check it out now by visiting the web page here:

http://www.theoptionclub.com/qst_preview.php

Good Trading,

Christopher Smith
TheOptionClub.com

P.S. There is a very short list of products that I promote through my website. There are two reasons for this.

Before I will promote a product or service, it must be one that I have used myself. Secondly, it must provide sufficient value that I would be willing to buy it all over again.

Also, if you decide to purchase the Quantum Swing Trader course and use a link on this blog, make sure to let me know about it. I will provide you with a free copy of my audio presentation "Swing Trading With Stock Options."

Credit Spread Trading and the SPX

Last week saw the SPX make a relatively large downward move on volume, with the market closing near its lows for the day. This occurred on Tuesday and suggested that further downward movement was in store.

The next day saw the further selling, with the SPX actually breaching the next Fibonacci level. That same day we had a reversal, on volume, with the market closing above the prior day's close and near its intra-day highs. A bullish sign.

So, where does that leave us?

The market remains in a bearish correction, but there has now been an attempted rally. That rally attempt began on Tuesday, with the intra-day reversal. The market must now follow through on volume if this attempted rally has hope of pushing to new highs.


Let's look at the bigger picture, however. What you see above is a long term, monthly chart of the S&P 500 dating back to before the current bull market began. From a long-term view we are still in an interim bearish trend, but is this correction nearing an end?

I sought confirmation of this from MarketClub's chart analysis software and stole an image capture of that analysis, which I have inserted below. What is nice about this analysis is that it is based on defined, objective criteria and the factors being considered are clearly identified.

The outlook remains decidedly bearish, which is consistent with our current directional bias. We have seen one day of buying on volume since the market sold off on February 27th, but one good day does not make for a market rally. Until we see evidence of further institutional buying you will want to be cautious of further potential downside.

Meanwhile, my 1,460 - 1,470 bear call spread remains safely out of trouble. I will continue looking for an opportunity to roll into an iron condor, but I am being rather cautious about this because I want to remain safely away from the market and I also want a healthy credit to justify the risk of selling a bullish spread. Patience and caution are my current watchwords.

Good trading!

Christopher Smith
TheOptionClub.com

S&P 500 Market Analysis

I pulled an intra-day chart of the S&P 500 off of the MarketClub service. If you click on the above chart, it will load a larger image that you may find easier to view.

You have some Fibonacci levels projected on the chart, which show likely areas of support during this pull-back. You can see that the market has now tested the first level, twice. The intra-day bar for today, March 14th, has penetrated that level quite dramatically. Price levels have since recovered, but keep an eye on it because we may be heading down to 1,350.

A few days back I posted a video Adam Hewison put together, performing similar analysis on the Dow Jones Industrial Average. You might review that video to refresh your understanding of this Fib levels and to assess what is currently happening with the major indices.

View the DJIA Video

Good trading!

Christopher Smith
TheOptionClub.com

Failed Market Rally on the SPX

The market sold off heavily again, yesterday. The selling took place on heavier than normal volume. Again, this volume surge is an indication of institutional selling.

Back on March 7th, I told you not to trust the rally attempt unless you saw signs of institutional participation. (See, Assessing a Market Rally.) A rally without these big players is doomed to failure. The buying that had been taking place was on rather anemic volume; and indication the big players were not behind it.

Most of the gains from that rally were lost yesterday.

On the bright side, our bear call spread is well positioned for a maximum return of over 13% on risk capital. If the S&P 500 remains below 1,460, we will likely double our current 11.75% year-to-date return.

I will try to update the blog again later today with some current market analysis.

Keep an eye on your risk!

Christopher Smith
TheOptionClub.com

Lawrence G. McMillan

I recently received a telephone call from Karen Guerra who works for Larry McMillan.

I am sure everyone knows who Larry McMillan is, but for anyone who does not he is a very well known and respected options expert and author of "McMillan on Options", "Options As A Strategic Investment," "New Insights On Covered Call Writing", etc.

Larry McMillan is putting on a seminar this month in Los Angeles, and later this year in New York. They are extending an invitation to our group to attend. I told Karen I would be happy to pass the invitation along to the group, but I also told her she should get Larry's blessing to give us a discount. She agreed and so did Larry!

The L.A. seminar is at the end of this month. Karen has cut the price for TheOptionClub subscribers from $1,299 to $999. I figure if you read this blog, you're a subscriber...

The New York seminar is not until October 15th, so they have knocked another $100 off of the price for "early bird" registrations, so you can sign up today for $899.

Seating is limited to just 45 attendees. It's just you, Larry McMillan, and 44 others, so they are expecting a sell-out.

If you want more information, if you want to take a look at the course outline, or you want to sign up, you can use the following link:

http://www.theoptionclub.com/support/mcmillan-seminar.html

You can also call them at (800)724-1817, but be sure to tell them you're a member of TheOptionClub.com to get the discounted registration price.

Karen Guerra said that if anyone has questions, feel free to ask for her and she is happy to help.

So, I am pretty excited that our site caught the attention of Larry McMillan and his staff. I also think it is very gracious of them to accommodate us as they have, and what a terrific opportunity to spend a day with one of the most respected names in stock options trading!

Feel free to get in touch with Karen with any questions, or post them here and I'll get a response for you. If you decide to attend one of the seminars, let me know!

Christopher Smith
TheOptionClub.com

Portfolio Hedging for Traders

I received a report from Bill Poulos and read through it over the weekend. In the report, he shares some of his thoughts about constructing a trading portfolio to weather changes in market direction, such as what we recently experienced.

Essentially, he is of the opinion that no one can predict those directional changes so you need to have other methods for protecting your capital in place. I agree with that principle and I think Bill's approach to constructing a trading portfolio makes sense.

I figured I would pass it along to those who are interested. The report is available for download here:

http://www.theoptionclub.com/support/poulos-market-report.html

Bill is pretty savvy when it comes to constructing a trading system with a positive profit expectation. You'll see some of that in this report.

Bear Call Spread Opend on the SPX

Monday, I told you I'd go hunting for bearish credit spreads. The market cooperated yesterday, pushing higher than I anticipated.

Is the correction over?

Certainly, stocks did tally some healthy gains. Volume was light, however.

Watch volume for tell tale signs of institutional money.

Today, the market tried to add to those gains but before market close all of the major indices were in the red.

Tuesday was a good day in other respects, however. That big push upwards made it possible to sell bear calls spreads at more distant strikes and still pull in a handsome credit.

I sold the April '07 1,460 - 1,470 bear call spread for a $1.20 credit. My maximum risk is:

$10 - $1.20 = $8.80 - or -
$880.00 per spread

The maximum return on risk is:

$1.20 / ($10 - $1.20) = 13.6%

The objective now is to open a bull put spread, which will further reduce the maximum risk and enhance the return. In the current market conditions, further downside is not only possible but, personally, I expect it.

Any bull put spread will need to be at a distant strike and bring in a healthy credit. I placed orders for one today, but with the market spending most of the day in the green and the VIX subsiding the order remained unfilled.

Tomorrow's another day and I would not be surprised to see us open down after a disappointing close today.

Christopher Smith
TheOptionClub.com

Bear Call Spreads on the SPX

Yesterday the market sold of, but stayed above the 1,370 support level I mentioned in Sunday's post. The SPX closed at 1,374, just a hair above it's low for the day.

The market opened decidedly up this morning, but it seems a bit early for the institutions to shift from sell to buy mode. I still expect to see us trade lower over the coming days.

I did place orders for bearish credit spreads, yesterday. They were not filled as the market traded lower and I was not willing to give chase. I'll be looking again today.

Remember, there is a tele-seminar tonight.

Christopher Smith
TheOptionClub.com

Credit Spreads and Preparing For Future Corrections

As anticipated, the market is down again today. I have scouted out a couple bear call spreads on the S&P 500 that look good, due in no small part to the pumped up implied volatility.

Those spreads are strategically placed and somewhat aggressively priced, so I may or may not see a fill today. I am not in a hurry to jump into the market.

Now, if you got burned in last week's sell-off, you may want to set aside some time tomorrow.

Ron Ianieri and Bill Johnson are hosting a tele-seminar tomorrow evening to outline some steps you might have taken to protect yourself from such events.

There is no cost to attend, you just have to register in advance.

Register For Tomorrow's Free Tele-Seminar

Christopher Smith
TheOptionClub.com

Analyzing the S&P 500 and a Video on GOOG

We have now had a weekend to think about things that happened in the market last week. There is no doubt that the market as a whole is correcting. The only questions are how much of a correction should we expect and now long will it take.

In Friday's post I shared a video featuring Adam Hewison's analysis of the DJIA. Today, I have another video from Adam with his analysis of Google.

Watch Adam Hewison's Analysis of GOOG

Now, GOOG is a big stock and a Wall Street darling. You may have a position on GOOG, but if you watch the video I think you'll be reconsidering it if you're long.

Adam isn't the only guy looking at the market, however. I've got my chart up, too!

Let's talk about the S&P 500.

Tuesday, Feb. 27th - Before the sell off, we had hit our high just above 1,450 and Monday close a whisper below that level; 1,449.37.

Tuesday's sell-off thumped hard on support at the 1,400 level as 50 points evaporated in the heat of the day's selling. That's a big deal, because 1,400 was our first Fibonacci retracement level. The 50-day moving average was a blur as the market blew past it within the first two hours of trading on Tuesday.

The most important thing you can discern from Tuesday's price action is that this was not the small investor getting nervous. It takes institutional selling to achieve these kind of moves. The "smart money" decided it was time to get out.

Why get out?

Oh, we could talk for hours about inflation, interest rates, slowing economies, the Chinese government, corporate earnings, yada, yada, yada... Look, don't try to find reasons for the selling, just acknowledge what you saw on Tuesday.

The big money decided it was time to get out....

Wednesday, Feb. 28th - Hey! We were up. The price action was unimpressive. The institutions were not behind the buying. But, we closed higher.

Thursday, Mar. 1 - The market could not hold its modest gains from the day before. The market closed lower.

Friday, Mar. 2 - The sellers were back.

What's going to happen now?

Well, no one knows for sure. The best we can do his talk in terms of probabilities. My guess is that next week will see the market move lower. Support should come in between 1,370 and 1,361. Ultimately, I'm looking for the market to hit 1,342.

The good news is that as option traders we're not wed to bullish trades. We can get bearish, or market neutral, just as easily as we can go long.

Tomorrow, I'm looking for some bearish credit spreads.

Christopher Smith
TheOptionClub.com

Week's End Video of DJIA

It looks like another day of selling.

Here is a video that was just sent to me by the guys at MarketClub, which walks through this week's selling and tries to make sense of it. They also provide you their thoughts on where the DJIA is headed.

Watch The DJIA Video

I'm looking at a similar retracement and share their thoughts about avoiding long positions until a bottom is found. I have a couple short positions right now, and one credit spread that I rolled into an iron condor.

Good trading!

Christopher Smith
TheOptionClub.com

Market Update and Learning About Stock Options

Tuesday we sold off. Yesterday we saw some relief. Today, things were soft.

What gives?

Keep in mind that Tuesday selling was huge. Volume like that is not generated by a few skittish investors. The institutions were the ones hitting the sell button.

Yesterday's relief rally was anemic. Volume was light. It was a good opportunity to close out long positions, though.

With IV now infusing throughout the option chains, it is worth taking a look at potential trades. Don't feel the need to hurry into any positions. Caution should be a controlling influence for you.

If you've been following along with my posts and find yourself intrigued, wanting to learn more about options you have an opportunity of which you may want to take advantage. Today, Options University re-released a limited number of Ron Ianieri's 2007 Options Mastery program.

This course was released in December and sold out after a few days. The limited releases allow Ron and the folks at Options University provide good support to news students without becoming overwhelmed. You can use the link below to check out the course. I highly recommend it and own a copy myself.

It is truly an excellent value when compared with other seminars, which candidly do not cover the material as well as Ron has in his course.

http://www.theoptionclub.com/option_mastery.php

If you do decide to purchase the course through my link, be sure to forward a copy of your receipt to me. I am finishing up my High Probability Trading materials, which will become available in 30 to 45 days.

I'll confirm that your order came through the above link and provide you with my materials at no charge, as a way to thank you for support TheOptionClub.com.

Good trading and mind your risk!

Christopher Smith
TheOptionClub.com