Filtering For Improved Portfolio Performance

Today, I have the third video in a three-video series about building an investment portfolio.

It covers a concept called "filtering." This is a technique that is not often discussed, but it can really help zero in on strong investment returns.

The concepts reviewed have application for the stock market, as well as the futures and foreign currency markets. There is no cost for the video and no need to register.

Filter Investments Video

Just click, view and enjoy...

Trade well!

Christopher Smith
TheOptionClub.com

Profits Of 18% In December?

We have seen a very difficult market for both traders and investors. The current market conditions have been highlighted by increased volatility. It has not been uncommon for us to see the Dow Jones Industrial Average up 100 points one day, and down a couple hundred in next.

Volatility can be an option traders best ally, however. That is precisely what allowed me to generate more than 18% and profits for the December expiration. Yesterday, I closed my December iron Condor and acting in a nice profit after watching the index thrash within its trading range.

Back on November 23 I opened a bear call spread at the $830 strike for credit of $.95. a few days later the market had sold off, allowing me to sell a bull put spread at the $660 strike for a credit on $.70. The Russell 2000 was then trading at 748, giving me a significant cushion on both the call and the put side of the trade. From that point forward I did nothing, but watch the market gyrations.

Yesterday, I began buying back the position and exited for a net debit of $.10. This left me with a profit or dollar 55 on a 10 point spread, with a maximum risk of $8.35. A profit of $1.55 on risk of $8.35 translates into an approximate return of 18.5%. What made this trade especially sweet was the fact that it required very little in the way of monitoring or managing during a period of time that many market participants were struggling.

What this demonstrates is that as and options trader you are able to take you to the attention of any market condition and turn it to your advantage. So, rather than fighting the market you find yourself in a position of simply identifying current conditions and adapting to them.

Good trading!

Christopher Smith
TheOptionClub.com

Trading From The "Hard Right Edge"

One of the most challenging aspects of trading is to get your mind around "the hard right edge" - the unknown future that lies to the right of any chart.

It's one thing to go back and examine a particular chart's history and show how a trading method worked...

...but it's altogether different to examine the "current bar", or the current day, make a trading decision and then see what happens the next day.

That's why I am sharing this brand new "play-by-play" trading video that shows you the decision-making process a trader goes through each day, using a specific trading method that leaves nothing to chance.

The video is somewhat unique because it was recorded in daily segments, as the trade was playing out so you can get a real feel for the on-the-spot observations and decisions he makes each day...

...and it's all done without knowing what's beyond 'the hard right edge'.

This is a recent trade for the USD /CAD Forex pair... and it's still an OPEN TRADE, so watch it carefully and see what happens here:

Watch The Trade Video

When you're watching the video, notice how 'the hard right edge' doesn't bother this trader at all, and then imagine what it would feel like to trade with 100 percent confidence every time.

It's a pretty awesome feeling. Trust me.

I hope you enjoy this play-by-play video.

Trade well!

Christopher Smith
TheOptionClub.com

P.S. Did you know that it is now possible to trade the FOREX market using options? It is and I'm going to be talking more about it. I'll follow up with new content of Forex options and what it means for you.

Portfolio Diversification Explained

Let's talk a little bit about portfolio diversification.

Too often we find ourselves opening multiple positions within our portfolio, all of which tend to rise and fall with the stock market. When the market is safely trending upward, we feel confident and secure in the construction of our portfolio. However, a marker correction, such as that we are experiencing, can shake our confidence as we watch our account equity shrink with falling stock prices.

One of the concepts then we will want to incorporate into our financial planning is that of a portfolio diversification. This comes in many forms, but generally requires diversification among both markets and individual market sectors.

Portfolio Diversification Video

Utilize the link above to access a recent video on the subject of portfolio diversification. This video is the first in a series and I will follow-up with subsequent videos here on my blog.

Trade well!

Christopher Smith
TheOptionClub.com

Discover How You Can Avoid Trading Troubling Stock Market Corrections And Turbulent Consolidations, But Still Profit From Sustained Trends...

Over the last several months I have begun developing an interest in FOREX, and more specifically in FX options.

What is FOREX? What are FX options?

FOREX is the Foreign Exchange Currency market and an FX option is an option on a particular currency where the owner has the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.

Very similar to equity options, right?

Several months ago I shared with you an extensive report issued by one of my trading mentors. He made the report available at no cost to anyone who wanted it. That report has now been updated.

This brand new December, 2007, update to the Forex report has just been released. The prior version challenged most everything that 90% of Forex traders hold to be true.

The idea behind the original report was to help you discover how to ride the "coat tails" of the big banks to maximize your "pip potential." If you already saw the first version, you already know what I am talking about, but wait until you see the new one...

HERE'S THE BACKGROUND ON THE REPORT

Bill Poulos is the trader who put this 77-page monster together after surveying over 50,000 traders to find out what their biggest concerns, questions, and challenges were around Forex trading.

And then he spilled the beans on the cold, hard reality of the Forex markets - to our benefit.

Here's why...

Not only does he reveal his answers to the top 20+ questions his readers asked him, but he tackles head-on and completely obliterates the confusion that seems to plague most Forex traders.

WHAT THIS REPORT IS ALL ABOUT...

Bill also shared how the he, and his students, spend just 20 minutes a day with TOTAL confidence in the Forex markets, identifying more pip potential in that time than most other traders who spend hours trying to trade their favorite Forex pairs.

You'll also learn:

** How to "shake out" the good Forex brokers from the unscrupulous ones. Many brokers won't be prepared when you ask
them these 5 questions (page 12).

** His "insiders formula" on how to determine the best mix of technical indicators to use when trading Forex pairs (page 23).

** Step-by-step tactics for applying his "Optimal Profit Exit Strategy". This is one of his favorite ways to enjoy profit-taking as quickly as possible (page 33).

** How he was able to drastically reduce his "time in the trenches" trading Forex by spending only 20 minutes a day. These 2 discoveries made it all possible (page 54).

** ...plus, there's a TON more you'll get to sink your teeth into when you get the report.


WHY HE'S GIVING IT ALL AWAY

I was provided with a preview copy of the original report, I thought for sure I'd see it for sale online in a few days. In fact, I thought it would sell very well.

That was not Bill's motivation, however. He wanted to de-mystify the Forex markets. There are too many myths, too many inaccuracies, and far too much misinformation out there.

As an educator, this only made his job more difficult.

HOW TO GET YOUR COPY

Hey, it couldn't be easier! To get your copy, just visit this web page right now:

Download The Forex Report

By the way, you also have the author's permission to give away copies of this report to anyone you think needs some help with their Forex trading. Even if you have a friend that has an interest in the subject, I would shoot them a copy, as well.

I hope you enjoy it as much as I have.


Good Trading,

Christopher Smith
TheOptionClub.com


P.S. This is a HUGE report. Take your time and read it all, but my advice is to download it quickly because it could be taken offline if the web server "bandwidth" is overused.

My Options University Strategist Experience, to Date

Last month, I had been fairly excited about the Option University Strategist trading service. It launched to the public last month, but they had actually started trading in October for a select group of "in-house" clients.

Now that I am almost a month into this, my enthusiasm still remains pretty high. I thought I would show you a couple trades that are now closed, just to give you an idea of what you might find as a subscriber.

Generating More Than 100% Returns on the SPYder

The first trade that I will share with you is one that was open on the SPYder, an the ETF fund that approximates the S&P 500 index. The trade was opened October 10, 2007. This was the day before the index hit its recent peak, just prior to this latest round of selling.

The Strategist service recommended the purchase of 10 November $159 put options. With the underlying at about $156 per share, a stop was placed at $157.70, with a profit target setat $151 per share. These put options cost $4.25, so the cost to enter the trade buying 10 contracts was $4250.

The position was closed on October 24, 2007. The profit target had been reached and the puts were sold for $9 dollars per contract, or $9,000 in gross proceeds. This translated into about 111% return on capital. Not bad for two weeks ork!

Grabbing Over 120% In Three Days

Another trade during the month of October was on BRCM, consisting of a long strangle. The position was opened on October 8, 2007 with the purchase of the October $37.50 call option and the October $35.00 dollar put option. Earnings were scheduled for October 19, 2007. Implied volatility was low, allowing for an inexpensive entry, and a triangle pattern was present.

On October 19, 2007, the long call expired worthless. However, on October 11, 2007, the put option was sold for substantial profit producing little over 120% profit on the trade.

These are just two of many trades that have been identified by the traders at Options University. finding and planning trades such as this, picks a fair bit of skill and quite a bit of time. I know, because I've done it.

What options University strategist provides is an alternative, whereby professional traders will do the "grunt work" for you and issue to trade for your consideration. If it looks good do you and fits your particular needs, you need only place you're with your options broker.

Modifying Trade Recommendations for Your Portfolio

You may find that the number of contracts being traded by the service may be too few, for too many, for your portfolio. I don't see any reason why most of these trades cannot be sized up or down. In other words, once receive a recommendation it is always your prerogative to decide how best to apply the recommendation in the context of your individual trading plan. If your plan calls for a maximum risk of no more than $1000, you might not trade and contracts but simply limit your position to one or two contracts.

Options University Strategist Service

Tomorrow's a start of a new month, so it is time to reflect back on your recent trades and determine how you have fared. If you find that you are in need of some assistance, you might want to consider enlisting these services of the traders at Options University.

Trade well!

Christopher Smith
TheOptionClub.com

Market Update for the Week Ending November 30, 2007

The best thing that we can say about this week is that we are off to our recent lows. Equities rallied on Friday morning, but gave up some of their early gains. The NASDAQ action closed lower for the day, producing a distribution day on increased volume.

However, the other major indices all closed higher. The recent buying has been fueled by growing expectations of a Fed rate cut. Yesterday, we also saw oil prices fall further from their highs. It is not all rosy out there, as we have continued concerns regarding the housing market and credit markets. Consumer confidence has been staggered. I have seen mention in a few places about possible recession.

All of this creates a great deal of uncertainty. There are some bright spots, with leading stocks showing some resiliency admits all the selling. When markets are trending the ability to pick strong stocks is not always necessary to make money, as most science will tend to rise with the overall market. These consolidations will typically batter the weaker companies, pushing stock prices lower.

You can take a look at leading companies such as Intuitive Surgic and Apple Inc., and you'll see how they have maintained an upward trend despite the recent correction. Paying attention to the trend in the stock's behavior, or that of an index, it's critically important if you hope to stay profitable during these difficult market transitions.

If you need some help assessing the trend of a particular security, I would encourage you to take advantage of of the complementary trend assessment service provided by the guys at Market Club. This free service also makes for nice second opinion before jumping in.

Trade well!

Christopher Smith
TheOptionClub.com

Analysis Of Market Trends During A Correction

Well, we had nice update in the market yesterday. Today, the markets are on another upward tear.

Looking at the charts, this market remains dramatically oversold. It is not surprising that we are seeing some significant buying at this point in time. The markets have sold off more than 10% during this most recent correction. It is during such corrections that investors are likely to step in and add to their long term equity holdings.

If you are long-term investor, you made very well be part of the buying. For those with a shorter term perspective, you will want to be somewhat cautious because it is not clear that the correction is over. There remains a significant concern that the US economy is on the verge of recession.

If you are considering "getting along" in a particular stock or index product, remember the old saying "the trend is your friend, except at the end." It may be prudent to perform some analysis of the current trend. Obviously, this can be done utilizing any stock charting or technical analysis platform that you may choose.

For those who are less confident in their own abilities, you might consider taking advantage of a complimentary service. Just type in a ticker symbol and your e-mail address, and INO.com will e-mail their trend analysis to you.

Complementary INO.com Trend Analysis

Keeping your eye on the trend will significantly improve your odds of success. Even with the current correction in play, the stronger stocks will exhibit and maintain upward trending characteristics. Weaker candidates are likely showing telltale signs that any bullish run they have experienced is now over.

Corrections are difficult to deal with for the average investor in trader. However, for those who understand how the markets operate there are opportunities for significant profitability. So, be cautious but keep your eyes open for those opportunities that present themselves.

Trade well!

Christopher Smith
TheOptionClub.com

Options University Strategist Review

Last night was the live webinar introducing the Options University Strategist service. If you missed it, I wanted to share with you what I learned as well as my thoughts about the service.

You have been diligent with your study...

You have learned the foundations of options trading...

However, we understand that you have lives. You are busy during your day and you come home to family and other responsibilities...

You may not have time to do the homework that you should be doing to find, plan and manage your trades.

This whole service was born out of a very specific perceived need. Options University has what I consider to be the best paid general options education curriculum available. They teach a lot of students every year about options and how to trade them...the right way.

Ron Ianieri and his team have seen the diligence of their students and appreciate that for the retail trader, a little help can be of great assistance. The concept of a service began to form. However, this had to be an "in house" service, something Options University could control so that their trading philosophy would be present in the trades delivered to subscribers. They did not want to throw their students to the wolves...

Ron tapped his resources to hire traders off of the floor, guys he himself had trained, and put them to work researching and planning trades for OUS subscribers. The team researches trading opportunities. When they find the right opportunity, an options strategy is applied to take advantage of it.

Cutting Edge Technology Delivers All Of The Trading Opportunities To You, No Matter Where You Are...

The trades and all adjustments are sent out to subscribers on e-mail, but also through a dedicated RSS feed. The RSS feed bypasses e-mail, so you can be sure to receive alerts even if e-mail fails.

Options University invested in their own RSS client, which you can download and install on your desktop to receive real time alerts directly from their server. Also, they will soon be issuing trade alerts and updates through a text message sent to your cellular phone.

That is three means of receiving information...

Your job is to simply review the alerts and updates, determine whether they meet your trading criteria and tolerances, and then take the appropriate action. Right now, they are averaging about five trades each week. Those trades will offer a variety of approaches, so you're not buying into a service that leaves you stuck with a single options strategy that may not be appropriate for prevailing market conditions.

The service has been up and running for just a couple months, and is only now being offered to the general public. Consequently, the trading track record is limited. However, this is the same thing that Ron Ianieri did for more than 10 years in Philadelphia. If you have taken any of his courses, you know that he is a very skilled trader with many years of experience trading from the pits as well as from off the floor.

In addition to the trade alerts, you will also have access to monthly tele-classes. These should provide even more insight into what the traders are doing, helping you to better understand their methods and reasoning.

This Service Is NOT For Everyone! But If You Have Done Your Homework, Are Ready To Trade, But Need A Little Help With Your Research...

Ron was very candid during the webinar. This service is not for everyone. If you have not taken the time to learn and understand options, you probably need to do that first.

However, if you have studied and have learned what options are and how they work, but are frustrated by the many pressures in your day that keep you from doing the homework necessary to trade, well then you just might want to take a look.

The webinar was recorded. Check back here, because as soon as they get the recording compiled and loaded for replay, I'll be posting a link.

In the meantime, if you would like to learn a little bit more about the service, you can do so here:

Options University Strategist

I have never recommended a trading service before. The reason I have never recommended one is because I have never found one that helps a trader, a retail trader, actually trade their account profitably.

What sets OUS apart is the fact that they 1.) have assembled a professional team of professionals, 2.) they have built this service entirely "in house" to insure the quality and legitimacy of every recommendation they issue, and 3.) they are taking a community approach, allowing their subscribers to actively participate in the development of the program.

Right now, they have cut the subscription costs. During the webinar, Ron gave his word that if you subscribe at the introductory price it will never be increased for as long as you remain a subscriber. Combined with the OUS guarantee, it's a good time to take a look!

So, if you are struggling in this market consider investing a couple hundred bucks (money that you may very well lose to the market) and get some help from the pros...

Trade well.

Christopher Smith
TheOptionClub.com

Options University Strategist Launching Tonight!

So many questions...

I have received a lot of e-mails with questions about the new service from Options University. I would be happy to answer them all, but I have shared all of the information I have.

However, I do know where and when you can get answers to your questions...

Tonight At 9:00 p.m. EST (that would be 6:00 p.m. on the west coast), The Team Over At Options University Is Hosting A Complimentary Webinar Presentation To Preview Their Evolutionary New Options Service, Which They Call 'The Options University Strategist'.

I am already registered and plan to participate, myself. Some of our members have an interest in this type of 'done for you' trading service... Others want to learn from watching experienced professionals...

Either way, you should see the technology they've put together, and what a real "A Team" of stock and options experts they have assembled.

Register Now For The Options University Strategist Webinar

I'll be logging in, so I hope to see you there!


Christopher Smith
TheOptionClub.com

Options University Strategist Is Being Unveiled!

There is a brand-new service from Options University that is being launched this week. The service is called "Options University Strategist," or just "OUS" for short. It will be the closest thing to a "done for you" trading service you've ever seen.

I have always had a big problem with trade advisory services. I do not like them. I must confess that I have subscribed to many over the years, but that is how I have come to realize that you simply cannot turn your financial future over to an advisory service.

What is helpful is the ability to watch experienced, profitable traders research and execute their trades. Trade advisory services do not typically provide this sort of disclosure, for a variety of reasons, which prevents you from understanding how or why it is that they are recommending the specific positions or the decision making that goes on behind the scenes.

After considering this dilemma and searching for an advisory service that provided that "look over the shoulder," I realized that it simply did not exist in a form that made sense to me. Candidly, I began thinking about how I could offer such a service through TheOptionClub.com.

Well, the guys over at Options University have beaten me to the punch on what I think will be a tremendously valuable service. The concept is that you're "looking over the shoulder" of skilled, professional options traders during every step of the trading process.

Ron Ianieri, the trading muscle behind Options University, is far better connected than I am with the trading world and has used that muscle to pull together a really sharp, professional team.

What this means is that you get to see some very good traders at work. You can mirror their trades. You can use the experience to improve your own trading. You can ask questions!

OUS has been at least a year in the making. It will use cutting edge, state-of-the-art technology to deliver the actual trade information. This avoids the problems of e-mail deliverability and delay.

Look, trading is a lonely profession for us retail traders. Most of learn from trial and error, and some of those errors prove to be very expensive. I know, I've been there. In fact, the whole reason TheOptionClub.com came into existence was to create a community of traders to take some of that loneliness out of the experience.

OUS is the next evolution, where you can see how experienced traders find, plan, and execute trades. No more guesswork... No sweating over making the "right" decisions...

So, if the trading is still a bit of a struggle, here is an opportunity to trade with and learn from successful options traders and still have a life!

To give you a preview of how the service works, and the technology behind it, OU's top options trainer and trader, Ron Ianieri, and OU's chief programmer Ryan Mastro have put together a short video.

This 14 minute preview video will give you a good idea about what the service is all about.

Here's the link to that video...

Options University Strategist Video

Also, Ron Ianieri will hold a very special webinar THIS Thursday night, November 15, 2007, at 9:00 PM Eastern. He'll go over OUS in much more detail, and answer any questions you might have about the service.

The webinar will serve as the official launch for OUS. So you don't want to miss it!

Here's where to get all the details for that webinar:

OUS Webinar, Nov. 15th, 2007, 9:00 p.m est

Once that webinar is aired, it'll be first come, first served for getting started with the OUS service!

OUS can only take a limited number of traders. They are limiting subscriptions to the service to preserve its viability.

In the meantime, take advantage of video to learn what this new service is, and what it isn't.

I can tell you... It's not for everybody, but for some it will be the last options trading service they'll ever need.

Here' the link to that video again...

Options University Strategist Video

Trade well!

Christopher Smith
TheOptionClub.com

Federal Reserve, Interest Rates and Market Resposne

Late yesterday, I received a brand new trading video from Bill Poulos but did not get a chance to take a look until this morning. Once I did, I thought you would want to watch it too.

Bill recorded it for his readers because of the Fed's recent decision to drop interest rates, and in it he debunks a common trading myth that could really cause your portfolio to tank if you're falling for it.

As always with these complimentary videos I'm not sure how long he'll keep it active, so be sure to check it out here:

Fed. Interest Rate Video

The video should load automatically, without any need to log in.

Enjoy.

Trade well,

Christopher Smith

Halloween Trading Report!

It's Halloween and I got to see all the kids dressed up in their costumes heading off to school. It is so much fun to see how excited they get. Even the scary costumes are too much fun...

The scariest thing today is the Fed announcement!

Bill Poulos is in a holiday mood, too...

For a limited time he is making available his rather popular report, "Profit Pulling Swing Trading Principles."

The idea is to help folks like you and me spend a little less time looking for trades. He is providing complimentary access to the report, which reveals concepts to:

** Shave hours off your trading routine...

** Identify the "sweet spot" of a trend, which provides the greatest potential...

** Where to place your stop loss (It's not where most traders place it...)

** Reveal why selling short can dramatically boost returns and why long positions can often be more risky that short positions...

** Remove the guess work from your trading and reduce your trading related stress...

There are many other tips shared by Bill in this report, but he is only making it available on a complimentary basis for just a few days.

Download Halloween Trading Report

Happy Halloween!

-Chris

Stock Market Update And Trend Trading Video

This week the market sold off several times during early trading, only to claw its way back in the afternoon. It was like the bulls were playing a "goal line defense," denying the bears any meaningful progress.

Monday saw the S&P 500 open at 1,497, following the prior Friday (Oct. 19th)'s sell-off. It clawed back up to 1,506.

On Tuesday we got up to 1,519, then sold off early on Wednesday only to reverse and close back at 1,515, just 4 points shy of the prior close. Early selling was again present on Thursday, but the market again reversed and closed at 1,514, down just one point.

Friday saw us finally push higher, closing at 1,535. So, we saw some upside by week's end and can head into the weekend on a positive note.

The "line in the sand" was apparently drawn at 1,500 on the SPX this week. We dipped below that level during intra-day trading, but we consistently closed above it. Friday saw the SPX break the bearish trend line but volume was not resounding, so I will be interested to see whether we follow through next week.

The market is trying to determine whether it wants to continue its bullish trend, or whether earnings growth will no longer justify higher equity prices. We all know that it is significantly easier to make money in the market when we trade in the same direction as the trend. The trick is finding the trend!

Finding The Market Trend

The above like will take you to a video presentation by Brad Stafford from MarketClub. In this video, Brad shares some techniques he and Adam Hewison use to find trends and trade them. There is no registration required to view this video.

Trade well!

Christopher Smith
TheOptionClub.com

Black Monday Crash Re-Visited

Friday was the 20th anniversary of the 1987 Black Monday market crash.

Heavy equipment maker Caterpillar (CAT) lowered its 2007 outlook based on slow U.S. economic growth. 3M, a diversified industrial firm, said it has to lower prices on some products due to competitive pressures.

These two DJIA components weighed heavily on the market, pulling the large cap indexes down by about 2.5%. The small-caps fared worse, shedding about 3% of their value.

Volume was higher, fueled in party by the fact that options were expiring. Yields on Treasuries slid, indicating that investors were selling their equity positions and seeking the "safety" of government securities.

There is little doubt that investors are jittery and it would not be surprising if we continue to see volatility in this market. I remain bullish on the market, but do suggest that you keep a close eye on any positions showing weakness.

My portfolio mains delta and theta positive. Those positive deltas have increased over the last week, but I am not tamping them down with new negative delta positions. My expectation is tht we will see the market trade higher, and as it does, I will then look to add reign in those positive delta positions.

The bottom line is that as long as I am bullish, I am willing to ride these corrections out.

Trade well!

Christopher Smith
TheOptionClub.com

Updated Market Analysis for Stock Options Traders

On Tuesday I shared a video from Adam Hewison demonstrating potential concerns in the stock and equities market. This week we have in deed seen some selling.

I am now passing along some new information concerning this selling. When I became aware of these data points, I thought some of you might be interested.

• The broader Indexes (S&P, NYSE, R2000) all show notable buying during the recent 3-4 day pullback. Usually (90% of the time), this analysis method shows selling during price declines. I was quite surprised to see this but that only reinforces my theory that listening intently to CNBC is a great way to become a lemming rather than a leader in this industry. At least when it comes to market direction. Of these indexes, small caps (R2000, IWM) have experienced the least amount of buying.


• Banks (KBE) - selling has increased and is now at the highest level in more than a year.


• Homebuilders (XHB) - selling is still heavy but is only half of levels experienced just a few weeks ago. These comparisons still hint of a bottom but I'd like to see a re-test of recent highs from the last two weeks before I'm more confident.

Keep in mind that if you should not trade on this information unless you first do you own independent research and verify any findings shared here. You might simply consider this information a "suggestion" to look more closely and then draw your own conclusions.

Trade well!

Christopher Smith
TheOptionClub.com

Traders Are Nervous, Perhaps This Is Why...

This week is the anniversary of Black Monday, so if you're nervous about the market right now you're not alone...

Why are so many traders nervous this week?

There are several possible reasons, but it could be because this week is the 20th anniversary of BLACK MONDAY, the crash of '87. Many reading this email may be too young to remember the biggest single day drop in the history of the Dow Jones Industrial Average, but I was a young man at the time and remember quite well.

On the 19th of October 1987 the Dow dropped now less than 23% in one day. So what was the biggest single day loss during the infamous crash in 1929? It was 12.9%
on October 28th 1929.

Can it happen again? That's the question BARRONS posed on the front page of its weekly newspaper.

I have just completed watching a new video to show how you can protect yourself no matter what happens to the market.

You can watch it here. No registration is required.

Black Monday Video

This could be a rough week, so be sure you keep an eye on your trading and your risk.

Trade well.

Christopher Smith
TheOptionClub.com

How Stock Options Are Priced

Discussion continues on our message board about how options are priced. I love seeing these discussions because it means that members of TheOptionClub.com are developing their understanding of what options are and how they work.

There is always a bit of mental energy needed to grasp these concepts. You have to struggle with the concepts a bit before they sink in. Once they do, you will find that you have a much better sense for how an option will respond to changes in the market.

This is critical. As option traders, we look at the market and question what is likely to occur in the future. Are prices likely to rise? Will volatility fall? As we answer these questions, we begin the process of selecting an option strategy to take advantage of those changes or hedge against them.

I put together a video that introduces these concepts. It's only about 20 minutes long, so it is not a complete education but it will introduce the subject.

How Stock Options Work

Use the above link to access the video. I hope you find it helpful as an introduction. After you have viewed it, be sure to visit our Yahoo! Group where you can review the ongoing discussion and post your own questions and observations.

Trade well!

Christopher Smith
TheOptionClub.com

When is an option over or under priced?

The real answer to this question is that options are rarely, if ever, over or under priced. Today's options markets are very efficient and options tend to be "fairly priced" at all times.

The better question to ask is whether an option is relatively expensive or inexpensive. Just because an option is expensive does not mean that it is "over priced." There may be a very good reason why the option price has increased; e.g., an anticipated earnings release. There may also be very good reason why an option is relatively inexpensive; e.g., a planned take-over.

As the market becomes more concerned about future price movement, there is a willingness to pay more for options to protect equity positions or to take advantage of anticipated price movement. Once those concerns pass, option prices will likely fall to lower levels.

This whole discussion boils down to a study of implied volatility and how it can be used to assess current option prices. An option is only "cheap" or "under priced" if you expect implied volatility to increase. Conversely, an option is only "expensive" or "over priced" if you expect implied volatility to fall.

You can quickly determine the current implied volatility for any option through any decent options broker. Once you know what the current implied volatility is for an option, you can then compare it to where implied volatilities have been in the past. You can also compare current implied volatility to the historic volatility of the underlying security.

When comparing current implied volatility to where implied volatility has been in the past, you are looking at the changing market expectations for the future volatility of the underlying security. As IV rises, it reflects greater uncertainty and concern in the market for the future price movement of the underlying stock.

For example, you might see IV rise as a key earnings date approaches followed by a return to prior levels once the news breaks. That news may be the catalyst for a large price move, up or down, or it may unfold as a non-event despite the heightened uncertainty that preceded it.

A comparison of implied volatility to the historical volatility of the underlying security allows you to assess whether the market's expectations are consistent with what the stock or index has done in the past. As we have all read in any prospectus or financial disclaimer, past performance is not an indication of future results.

So, if you see IV rising or falling relative to historic volatility, it does not mean that the option is "over" or "under" priced. Rather, it should prompt you to question why the market is pricing in a greater or lesser amount of future volatility. Once you identify the catalyst for the IV change, you can then determine whether you want to be long or short vega.

There are several tools out there that can assist you in this analysis. The "right" tool is largely a function of personal preference. Your goal is to assess current implied volatility for purposes of determining whether you prefer being a net buyer or seller of options.

More information is available on our web site. You might consider reading the article entitled "Implied Volatility - Buying And Selling Stock Options" for further discussion about how IV can impact your trading decisions.

Christopher Smith
TheOptionClub.com

Contemplating Options Trades at the Airport

I realize that it has been several days since my last post, and hopefully a few of you have missed me. It is always nice to be missed!

For the last several days I have been in Tampa, Florida, attending meetings and an educational conference. In fact, I am still here! I am sitting in the Tampa International Airport tapping away on my lap top's keyboard, making use of the time before I board my flight.

We talk a lot about whether you should spend money on various educational products. I have always challenged people to think critically about this. This trip cost me a fair amount of money, but it was very much worth the time and the expense. In fact, I expect that my investment will be repaid many, many times over.

There are numerous opportunities for each of us to educate and improve ourselves. Some of those opportunities are better than others. I don't want you to stress over this stuff, but just ask yourself why you are interested in attending a given event or why you are considering the purpose of a particular course. Then ask yourself what benefit you hope to gain and whether the cost is justified.

Okay. So back to options trading!

I have a few positions in my personal accounts. Just one in the private member's account. The limited number of positions was due in large part to the fact that I knew I would be out-of-town, but as I await my flight I have been looking at the market and have a few orders that I plan on executing tomorrow.

There is a lot of uncertainty about the market right now, which translates into a good opportunity for options traders. Premiums are a bit higher, which makes me feel good about selling spreads.

Do not run out and just sell spreads, however!

This is much like buying educational products. Ask yourself what it is you hope to achieve. What is your overall investment and wealth building strategy? Options are simply a tool that you can use to effect a larger strategy. Without that overall strategic plan, you're just gambling on your ability to "be right" with any given trade.

You will never always be right. When you're wrong, just make sure you know how to deal with it and that you're "wrong" for the "right" reasons.

The idea is that you want to fit your trading into a larger plan to grow wealth. Ideally, your option trading will compliment your overall investing activities and even offset some of your investment risk.

From time to time I will try to revisit this issue here. Once you grasp the concept it can make a real significant difference in your financial life.

Trade well!

Christopher Smith
TheOptionClub.com

Forex Trading Video by Bill Poulos

A lot of you are asking what it's like to trade the Forex market...

You have also been asking how does Bill Poulus' trading methods work...

Those are the types of questions I have received and Bill had anticipated those very types of questions, too. He has recorded a video on day-by-day basis, beginning on September 6, 2007, and finishing a couple days ago, on September 18, 2007.

The video is cued and ready for viewing. You will get to see exactly what it feels like to quickly spot and jump on potential Forex moves BEFORE they happen and then ride them.

Remember, you're not scanning through thousands of stocks. There are only a handful of major currency pairs and you can narrow that down to just a few that you want to follow.

How long does it take to look at 3 or 4 price charts?

Are you beginning to see why this so powerful? The largest financial market in the world... The most liquid market in the world... Review a few price charts at night, looking for one of four set-ups...

The video is basically a daily trade diary, allowing you to discover for yourself:

• How to get in the market
• Where to place your stops
• How to take a quick profit
• When to let your trade RIDE so you can enjoy even MORE profit...

Watch it here NOW:

Bill Poulos' Forex Trading Video

(No name or email required or view it, it will just automatically load.)

Bill has filled most of the available seats in his charter class of Forex trading students, but has said he will leave the video up until he fills the remaining seats.

Good Trading,

Christopher Smith
TheOptionClub.com

Forex Profit Accelerator Review

Well, Bill Poulos' new Forex trading course is about to hit the market and the big question on the minds of would-be currency traders is whether it is any good. The trouble is that because it is a new course there are very few copies out there in the hands of people who can comment upon them.

Nonetheless, some advance preview copies have made their way into the hands of reviewers and the first review of Bill Poulos' Forex Profit Accelerator is now out! All things considered, the course is well designed and provides a lot of tools for those who wish to venture into the currency market.

Four trading systems and a complete money management system are the hall marks of this course. The four trading methods are complimentary of each other, allowing you to trade both the upside and downside moves, grab profits from short-term moves of just a few days, jump onto longer term trends, and make counter trend plays.

As good as his prior courses have been, this course out does all of them. You can read a comprehensive review of the course here:

Forex Profit Accelerator Review

I think we will see a lot more press on this course as things unfold, but this is the first full review. I hope you find it helpful.

Christopher Smith
TheOptionClub.com

Profiting From Range Bound Markets

We are one week September's expiration and the market has been range bound now since mid-August. The volatility has made for some nice premium in the index option chains, which combined with the tight range has made for excellent iron condor conditions.

I had backed off of my long vega trades, for obvious reasons, but recently opened a new double diagonal position for a small credit. If IV falls out of the trade, at least I'm in for a credit and will not be worried about having to pay down a fat debit by selling thin front month premium.

Looking back on this correction, my accounts have weathered the storm just fine. I'll probably comb through things over the weekend to see what there is to learn.

I am trying to get some details about this Options Intensive Workshop that Options University is hosting next month in San Francisco. So far, what I know is that the concept behind the workshop is to take attendees from an academic understanding of how options work to a practical application in the market.

Once we learn the fundamentals, we can all sit around and banter about options on a theoretical basis. Looking at the market, spotting the opportunity, and applying or adjusting an option strategy effectively is a whole other kettle of fish. It's totally doable, though.

Brett and Ron are really pushing hard to recruit some well known talent. The names that I have heard mentioned as lecturers include:

• Larry McMillan, author of McMillan on Options and Options As A Strategic Investment;
• Jon Najarian, aka "Dr. J";
• Price Headley from BigTrends.com,
• Tom Sosnoff from Think or Swim

There are others, but those are a few that come to mind right off the top of my head. The idea is to put you in a room with some great trading minds and let you learn from the best. Brett and Ron are really trying to over deliver on this.

Christopher Smith
TheOptionClub.com

A Life Long Trading Education And A Real Bargin To Boot!

Yesterday I received an e-mail from one of TheOptionClub.com members, questioning why I am often "blasting seminars that charge 2-3K" but then sponsor events such as Options University's Options Intensive Live Boot Camp.

A good question, I thought! A fair one, too...

I wanted to address this "head on" because there is a lot of confusion out there about financial education.

First, let's set the record straight. I don't believe that I've ever "blasted" any seminar solely about cost. A good education is worth some expense.

What I have done is encourage people to evaluate the expense of a seminar, trading course, software, data service, or whatever, in the context of a business or investment expense. For example, does it make sense to spend $3,000 if you're trading a $5,000 account?

If you hope/expect to double your account as a result of the expense, then perhaps it makes sense. On the other hand, if you expect to return 50% on the account then you may question whether you still want to spend the money.

What I have seen some people do is charge several thousands of dollars in seminars, software, data feeds, etc., to a credit card with the notion that they "need" these things to trade. Worse still, they are hoping to double their account in a short period of time to pay off the credit card.

The message I try to consistently deliver is that you want to make those purchase decisions in the context of what is realistic and reasonable.

We all eventually learn that the cost of education comes in many forms, but that there is always a cost associated with it. When you can learn something from a free web site or a $50 book, it can be a great value. That does not mean that information and knowledge are not worth paying for.

I have spent a good deal of money on my education, and I'll continue to do so. So far this year, I've spent thousands. This month I'll be flying to the East Cost to attend a three day seminar. The best we can do is look for reputable sources and approach each buying decision as a professional would. Hopefully, we consider ourselves to be professionals.

Why do I sponsor Options University? I'm one of their a satisfied customers and students. How about Bill Poulos? Yep, a student of his, too.

So, I will continue to make you aware of those products and services that I believe offer good value. Your job is to consider your needs, evaluate the anticipated benefits, and make your own decision.

Just be sure to keep in mind that our education is a life long pursuit. If you are not actively learning, you are probably falling behind.

To your success through knowledge...

Christopher Smith
TheOptionClub.com

Forex Profit Accelerator Preview

I have some additional material on foreign exchange trading for you...

http://www.forexprofitacceleratorcourse.com/forex-preview.html

Next week, on Tuesday, September 18th, my mentor, Bill Poulos, will be launching his new Forex trading course. I was privileged to receive a preview copy of what will probably be considered one of the best foreign exchange courses available to the public.

Everything about it is first class...

It is easy to understand...

I can't give you my copy of the course, but I have been granted special permission to give you private access to a Members Web Site Preview so you can see what his trading course is all about before the general public gets a chance to see it.

Here are a few of the things you'll receive access to on the preview site, beginning TODAY:

** Access to the PIP FEEDER service where you can get daily lists of the Forex pairs that have met the trade alert criteria. These are the Forex pairs that have a high probability of entering into potentially profitable positions any day now. Eventually, they will be charging $197/mo for this service, but it's complimentary on the Members Web Site Preview.

** The "Pip Vault", which contains actual Forex trade examples that you can view on videos, so you can see exactly how his students can trade in less then 20 minutes a night.

** Bonus Forex tutorials, including a very detailed lesson on the ins and outs of Forex trading using one of the popular charting and trading software packages on the market.

** Previews of the actual CD-ROMs that ship with the course so you can see exactly the type of material that's on them.

Go ahead and check it out now by visiting the web page here now:

http://www.forexprofitacceleratorcourse.com/forex-preview.html

So, why open the doors to all of this?

Producing a course like this is very involved.

Once you get past all of the editing and revision and everything is in final, you need to place an order with the printer who wants to be paid up front.

The number of courses you order is partly a function of anticipated product demand (which is guess) and your ability to provide service to the purchasers of the course.

The short version of the story is that there are 950 copies of the course available for this release.

There are already more than 20,000 traders interested in it. Bill knows he will sell out of the course...

...but he wants to do his best to make sure that those who buy it really want it. It is frustrating to have 20,000 eager buyers, then have someone return the course...

That's why he's letting me give you complimentary access to his Members Web Site Preview, but only until the course launches on September 18th.

By doing so, Bill hopes to let people "kick the tires" so that only those traders who are truly serious about learning how to trade the Forex markets get a copy of the course.

It's very straight forward.

Plus, if you are just curious about foreign exchange it's a great opportunity to get some insight into how things work.

Good Trading,

Christopher Smith
TheOptionClub.com

Forex Profit Accelerator

Let's pick up where we left off yesterday...

You know, I just love trading. Luckily, I have become good at it.

There are several people that I consider mentors, from whom I have learned a lot about the markets and how to trade them.

A few days ago, one of my trading mentors released a report on the Forex markets that, it's fair to say, is creating a bit of a stir...

...the reason being is that it challenges everything that that the general public and probably 90% of Forex traders hold to be true.

You already know that I trade equity options. I do not typically trade stocks, however. There are several reasons for that.

For purposes of trading, I, personally, have found Forex to offer several advantages over the equity markets. Those advantages include things like awesome liquidity and unbelievable leverage, and advantages like this are why so many retail traders are getting involved in the foreign exchange market.

There are some real pitfalls, however...

So if you have ANY interest in discovering how to ride the "coat tails" of the big banks to maximize, I have something for you that I think you will really appreciate.

To help me get a proper start trading the foreign exchange, I sought out a mentor and went straight to the man from whom I had already learned so much about trading.

That same man recently surveyed over 50,000 traders to find out what their biggest concerns, questions, and challenges were about Forex trading. He took the results of that survey and has put together a 55-page report on the foreign exchange market.

In this report he laid bare the cold, hard reality of the Forex markets...to our benefit.

Here's why...

First, he has provided his answers to the top 20 questions raised in the survey...

More importantly, he also tackles head-on much of the unfounded confusion that seems to plague the public, as well as most Forex traders.

Even better, he has shared a little bit about how he spends just 20 minutes a day to trade the Forex market with TOTAL confidence and peace of mind.

You'll also learn from this report:

• How to "shake out" the good Forex brokers from the unscrupulous ones. Many brokers won't be prepared when you ask them these 5 questions (page 12).
• His "insiders formula" on how to determine the best mix of technical indicators to use when trading Forex pairs (page 23).
• Step-by-step tactics for applying his "Optimal Profit Exit Strategy". This is one of his favorite ways to enjoy profit-taking as quickly as possible (page 32).
• How he was able to drastically reduce his "time in the trenches" trading Forex by spending only 20 minutes a day. These 2 discoveries made it all possible (page 42).
• ...plus, there's a TON more you'll get to sink your teeth into when you get the report.

I was given an advance copy of the report and was asked to get back to him and comment on what I had read. After reading this report, I figured he would be offering it for sale on his web site in a few days. When I got back with him after reading it, he told me...

The report is not for sale (at least not right now).

You can't purchase a copy.

He is frustrated with the misinformation out there and how new traders get hurt as a result...

That's why he decided to GIVE IT AWAY.

In his own words he says,

"I want to de-mystify the Forex markets once and for all. So I sat down to write this report as if I was under oath, being grilled by an attorney. That's how direct and forthcoming it is."

GET YOUR OWN COPY

To get your copy, just visit this web page right now:

http://www.forexprofitacceleratorcourse.com/forex-report.htm

I hope you enjoy the read as much as I did. I've really become interested in Forex and with Think Or Swim adding it to their platform my intrique really peaked. That's what got me studying and working with my trading mentor.

Good Trading,

Christopher Smith
TheOptionClub.com

Forex Trading Basics

Well, Labor Day has come and gone and the kids are back in school. The market continues to cause some nervousness as uncertainty remains the watch word.

I took some time off the last part of August, and my trading reflected the fact that I was not at the computer each day. Nonetheless, with implied volatility levels inflated I have been having some good success trading credit spreads on the indexes which invariably turn into iron condors as the market rises and falls.

The stock market is not the only game in town, however. A few years ago, I became very interested in the Forex market. It offers some significant advantages over the equity market, but there are also some real pitfalls. While I was relaxing on my short break, I thought I might share some information about the Forex market for those who have found themselves wondering what it is all about.

Forex is an abbreviation for the foreign exchange market, which is the largest financial market in the world. The foreign exchange market is an "over the counter" market, meaning that there is no centralized exchange. Currencies are traded directly through a network of banks and brokers, via an electronic network or through the telephone.

The Forex is a 24 hour market, with the first "trading day" starting at 5:00 p.m. EST on Sunday. Trading starts in Sydney, Australia, then transitions throughout the trading day to other financial centers in the world. From Sydney, the trading next moves to Tokyo, then London, and finally to New York where the trading session "ends" at 5:00 p.m. EST.

While one trading session ends at 5:00 p.m. EST in New York, the next session is getting started in Sydney, at the same time. As such, the Forex market does not actually close.

The most commonly traded currencies include the U.S. Dollar, the Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, and the Australian Dollar. These currencies are considered the "major" currencies in the Forex market.

Trading in the Forex market involves the trading of currency pairs. One currency for another. The common method of denoting which currencies are being traded utilizes a short, three letter abbreviation for each currency in the pair, separated by a slash. For example, EUR/USD denotes the Euro / U.S. Dollar pair. The other recognized pairs include GBP/USD, USD/JPY, USD/CHF, USD/CAD, and AUD/USD.

These recognized pairs of the major currencies are the most highly traded currency pairs in the the world. They are highly liquid and they are traded on a 24 hour basis. Of the majors, the EUR/USD and GBP/USD are the most prolific.

The order in which the currencies are denoted does have significance. The first three letter symbol identifies the "base" currency while the second three letter symbol identifies the "counter" currency. Quotes are given for the cost of the counter currency against the base. For example, if you are quoted 1.3855 for the EUR/USD you are being told that it will cost you 1.3855 U.S. Dollars to buy one Euro. A quote of 0.8644 on the USD/AUD pair, indicates that one Australian dollar will cost 0.8644 U.S. Dollars.

With the exception of the Japanese Yen, all of the major currencies are quoted out to four decimal points. The smallest unit by which a currency can be quoted is called a "pip." The Yen is quoted out to just two decimal points, so one "pip" for the yen is equal to .01, while a "pip" for any other of the major currencies would equal .0001.

The bid price is the price the market is willing to pay a seller of the currency pair. The ask price is the price the market is willing to sell a currency pair to a buyer.

The difference between the bid and ask price is known as the "bid/ask spread" and the difference between the two is how the market maker is compensated. Because they are compensated from the spread, there is no commission paid for the transaction. The bid/ask spread is not fixed, but will change with prevailing trading conditions.

Lot sizes are 100,000 units for a standard lot and 10,000 for a mini-lot. One pip on a standard lot equals $10. On a mini-lot, one pip is equal to $1.

Forex dealers offer leverage as high as 100:1, sometimes even higher. Assuming 100:1 leverage, 1 standard lot would require $1,000 in margin. A mini-lot would require $100 in margin. If your account value falls below the required margin on a position, the dealer will automatically and immediately close out the trade.

This is just a brief overview of Forex basics. While the Forex market is not something you would want to jump into on a casual basis, it can offer you some tremendous benefits. If you do choose to pursue trading in this market, take the time to first learn more about about how Forex works and how it can be traded safely. With 100:1 leverage, you can lose money just as fast as you earn it.

Good trading!

Christopher Smith
TheOptionClub.com

Trade Triangles And A Market Reversal

It's been a busy week for me, with work keeping me on the road most of the time. The market also turned as volatile as I have ever seen during that period of time.

So what the heck is going on?

I could talk to you about the current credit woes, about inflationary risks, about interest rates...

I'm not going to, though. Look back at my August 1st post, and the chart image of the S&P 500 that I posted. The graphic identified 1,437 as major support. Let's then look at the chart below, and see what has happened...

Support at 1,437 held for several days, but finally cracked on August 14th this week. My positions had been hedged, but once I saw support giving away I wanted to pare my positive delta. That's when I started closing positions, and currently hold just three.

Of those three, one is a very wide iron condor that I adjusted anticipating further downside. It currently has a very low delta and is not causing me much worry. I have a calendar spread on OIH, which has consolidated but not was wildly as the overall market. That position has a locked in, guaranteed profit so I am willing to ride out this correction and see if OIH resumes its upward trend. I also have a bull call spread on Costco, but that stock has held up fairly well and the current position was rolled into leaving me with a very limited risk of loss.

Everything else is in cash...

So, Thursday was a reversal day. That was a very wild ride, with the DJIA selling off more than 300 points during the day then covering all but 15 points by the close. The rally continued yesterday.

Is the correction over?

Perhaps. By careful, however. MarketClub still has not given us a green trade triangle on the daily, weekly or monthly charts. I would suggest waiting until you see a green trade triangle on the daily chart, before getting long the market. More conservative investors may want to wait for a green trade triangle on the weekly charts.

A lot of people were short this market. All of this buying we saw at the end of the session on Thursday may have been part of those shorts covering their positions, creating a reversal day. The DJIA was 200 points higher on Friday morning, which probably caused anyone with open short positions some pain forcing them to cover.

Are the bulls back? Maybe.

Let's make sure this rally is the real thing before we jeopardize our capital.

Let's put this in perspective. The S&P 500 is currently up 1.9% from where it started this year. If you had bought the index, you've given up most of your gains from the first seven months.

My options portfolio was up almost 40% before this correction and I've seen a 17% draw down this month. It is always when the market changes direction that you are most likely to see your losses. The difference between being up 20% versus 1.9% is in learning to avoid risks and limit any losses when they occur.

This is a very difficult market to trade or to call a bottom on, so keep your "powder dry" until you see confirmation before entering any directional trades. The trades that I currently favor right now are market neutral, vega neutral, short premium trades. The iron condor I mentioned earlier falls into this category.

Have a good weekend!

Christopher Smith
TheOptionClub.com

Stock Market Analysis - CSCO and Nasdaq Push Market Higher

Cisco Systems (CSCO) helped send stocks soaring yesterday. It was the Nasdaq that lead the market, gapping up at the open and continuing to rise during the day. The Nasdaq index rose 2%. The NYSE composite jumped 1.5%, the S&P 500 1.4% and the Dow industrials 1.1%. The small-cap S&P 600 bounced 1.5%.

Volume swelled across the board. The Nasdaq's total of 3.68 billion shares marked its second-biggest reading of the year, trailing only the most recent quadruple-witching day June 22. Cisco added about 110 million shares to the Nasdaq's tally, vaulting 7% on nearly four times average trade. Cisco's breakaway gap left the stock at its highest point in 6 1/2 years.

The market's big gains were an encouraging sign that this latest correction is concluding. Highly rated stocks have fared well. A number of former market leaders have staged robust gains in rapid turnover, returning to prominence. That kind of broadening leadership is typically a good sign for an emerging rally.

Of course, today the market is down but as I have counseled before it is important to pay attention to volume. Down days on lighter volume are a sign that the market is digesting recent gains. We can't go up every day. What you want to see is the bigger picture and look for signs of institutional activity.

Christopher Smith
TheOptionClub.com

CNBC Cramer Takes On The Fed

Cramer is on the Federal Reserve's case about cutting rates. The big question is whether things are truly as bad as he and the folks at Bear Sterns believe, or whether this correction is over blown.

Of course, for the retail investor and trader there is no real way to know. What we need to do is have a plan in place to 1.) protect our capital from undue loss, and 2.) position ourself for future profitability.

Christopher Smith
TheOptionClub.com

Analysis Of Continued Selling In The Stock Market

Many folks began breathing easier yesterday morning, as they say the U.S. markets trading higher. Those feelings of relief were torn from them and replaced with renewed concern as we saw renewed selling toward the close and the markets turned negative.

Last week, when this bout of selling began, I posted a video here on the blog walking you through some analysis of the S&P 500. I have not prepared a new video, but the analysis contained in the video still applies. It's still up so feel free to review it again, if you like. (Stock Market Correction Analysis Video)

What you see above is a snap shot of a price chart from the S&P 500, which was taken this morning. There are three blue lines, readily apparent on the chart. Those lines represent Fibonacci retracement levels, with the lower line representing a 61.8% retracement of the last impulse wave.

This bull market is an old one. It began in March 2003, and has been running the 4 years, 4 months since it began. The question that is everyone's mind is whether it still has legs left in it, or whether we are now seeing the development of a new bear market.

Either is a possibility and there is no one, including me, that can tell you with any degree of certainty which one will materialize. However, we can hedge our bets and we can take money off of the table. The name of the game is risk management.

In last week's video I talked about MarketClub's Trade Triangles, which had already flashed sell signals on the daily and weekly charts. We just had another light up on the monthly chart. These signals are not magic, but they are based upon trend following principles.

While my portfolio still has a net positive delta, I have tightened things up considerably and I have taken quite a bit of money off the table. I have seen some draw down as a result of this correction, but I am still up nearly 20% for the year. My goal is to protect those profits.

Any new positions I open under the current circumstances will be hedged with a bias to the downside. The goal in opening those positions will be to position myself to profit from further selling and to flatten out my currently positive portfolio delta. I do not intend to get wildly bearish, but I am listening to what the market is telling me and what it is telling me is that the bears currently hold the upper hand.

What's driving the selling?

I don't think it's energy or inflation, but most likely the deteriorating housing market and continuing credit woes. If housing prices are falling, this makes it difficult for consumers to finance large purchases from equity in their homes. Tightening credit markets are effecting Wall Street's ability to conduct business. The analysis could fill pages, but the bottom line to me is that it is going to be tougher for most companies to make a buck if they cannot cheaply and easily borrow money.

So, is a new bear here? I don't know. My advice is to continue listening to the market and watch for developing trends. The preliminary information that we have since this correction began is that we're seeing a shift in both short and long term trends.

Trade well!

Christopher Smith
TheOptionClub.com

Assessing Daily Price Moves

Yesterday saw some relief from recent selling and the market appears to be up again today. Keep an eye on volume, however.

Volume is an indication of the commitment behind a market move. If you're a bull, what you want to see are upward price moves on heavy volume and pull-backs on lighter trade.

Be cautious if you see the opposite; i.e., heavy volume selling and lighter volume pushing the market higher. This is an indication that the "big boys" are not behind the upward price move.

As I have said many times, no one knows with any degree of certainty where the market is headed. If you agree with me in my assessment, you will focus your efforts on managing risk for the purpose of containing losses when they occur.

Going long the market right now is a risky proposition. More conservative investors should be cautious about jumping in, but if you choose to "bottom fish" be sure to establish a stop loss. I have trimmed my portfolio somewhat the last few days, trying to reduce my exposure to further downside moves.

I have not declared myself a bear, yet. However, I want to see a return of volume to the buyside before re-adopting a decidedly bullish market bias.

Good trading!

Christopher Smith
TheOptionClub.com

Assessing The July 26th Market Sell Off

The market really let loose today and I realize that some may have concern about what this means for investors and traders going forward. Will we see more selling? When will it stop?

Yeah, I know. There are lots of questions.

I have put together a video and have loaded it onto my site. It's free for the viewing and walks you through some basic analysis. I hope you find it helpful.

Stock Market Analysis Video

Watch the video. If you are a conservative investor or trader, I'd suggest holding off on opening new bullish positions and perform a quick review of your current holdings to look for weakness and tighten your stops.

Good trading!

Christopher Smith
TheOptionClub.com

Selling Vertical Put Spreads

This month I have switched from trading credit spreads and iron condors on the SPX, a cash based index that mirrors the S&P 500, to trading similar positions on the RUT, also a cash based index but one that mirrors the Russel 2000 Small Cap Index.

The reason for this change is that the SPX is only traded in one pit on the CBOE, and my sense is that it is getting increasingly more difficult to get good fills especially when things get busy. In contrast, the RUT is traded on multiple exchanges including several electronic exchanges. Hopefully, this provides for a more efficient market and better overall value for me...the retail trader.

This morning we saw the markets quickly shed a fair bit of their value, but after about 45 minutes of trading they seemed to find their footing although I still see red on the ticker. Nonetheless, I saw this as an opportunity to sell some puts since they were in increasingly high demand.

A word of caution here...

I do not sell naked puts, especially on cash based indexes. This is a dangerous game and not one suitable for most, if not all, traders such as you and me. The reason is because puts act as insurance contracts for the market. If you're selling them, you're acting as a defacto insurance carrier and had better have the capital to pay the losses. Let's just say a bad month could be real trouble.

However, it is very easy to limit your risk of loss by simultaneously purchasing a put contract with each one you sell. You simply buy a put a relatively cheaper put than the one you sell and the difference in price is credited to your account.

This strategy is commonly referred to as a vertical credit spread or, in the case of put options, a bull put spread. So, I have sold some vertical put credit spreads this morning and with a little luck this market sell-off will be short lived.

Good trading!

Christopher Smith
TheOptionClub.com

Options Mastery Course

I wanted to post a quick reminder that today is the final day to pick up a copy of the Options Mastery course.

Options Mastery Course

Normally, I invite you to leave me with any questions you might have. I will not be at my computer today, so by the time I am able to respond this release of the course will likely have concluded.

However, what I can tell you is that when it comes to mastering the "nuts and bolts" of how options work, this is the course I recommend because I have not found anything else that covers the material as effectively without at least doubling or tripling the cost.

Trade well!

Christopher Smith
TheOptionClub.com

Implied Volatility Scan of the Week

I routinely run various scans on the market, looking for trading opportunities. Recently, I began sharing some of the results of these scans with subscribers to my e-mail newsletter. I thought I would also share with readers of this blog.

What follows is a portion of the data from an Implied Volatility scan I ran using Monday's closing data. It identifies stocks with IV hitting a new high for about the last year.

Historically High Implied Volatlity

Symbol (1)Low IV (2)High IV (3)Today's IV

XOM 16.51, 26.06, 26.06
WMI 16.02, 27.09, 27.09
USB 11.6, 19.39, 19.39

TWX 15.18, 27.13, 27.13
TASR 34.08, 88.44, 88.44
SGP 16.98, 32.78, 32.78

RTN 12.45, 22.56, 22.56
RDC 27.25, 49.44, 49.44
PRU 14.05, 23.79, 23.79

PCLN 25.51, 53.73, 53.73
PCG 12.51, 25.49, 25.49
OMC 14.76, 26.24, 26.24

MMM 14.2, 24.04, 24.04
MERQ 0.07, 88.19, 88.19
MEL 14.14, 30.59, 30.59

MBG 8.63, 106.13, 106.13
LMT 15.11, 25.69, 25.69
LH 13.95, 29.06, 29.06

This is a mechanical scan. The results of the scan have been NOT been verified. Before any trading decisions are made you do need to verify the accuracy of the data and take a closer look at the underlying stock to determine the reason why IV has reached a relative high.

For more information about Implied Volatility and how to use it in your trading, you might take a moment to read the following article:

Assessing Implied Volatility

If you find it useful, please let me know!

Trade well,

Christopher Smith
TheOptionClub.com

How High Will The DJIA Go?

The Dow Jones Industrial Average is pushing to breach the 14,000 level. Most people, including myself, believe that the market will take that price level and move higher.

The bigger question many are asking is how high is the DJIA likely to go? The reality is that no one can answer the question reliably.

However, there are tools out there than can help us to make projections. What's important about doing so is that you want to establish a market expectation for yourself.

By establishing a market expectation, you can position yourself so that you are trading in concert with what you anticipate the market will do. Of course, knowing that we can't always be right, you'll have an exit plan in place to close any trade when things do not work out. Money management, right? Right.

Dow Jones Industrial Average 14,000 - View Video

Here is a video that takes a long term look at the DJIA, demonstrating how you might go about projecting a long term path for the index. Once you have an expectation of where it is headed, then you just need a method of triggering you into the market at opportune times and a method for limiting losses when a trade goes awry.

Combine those three things, and you have what can be a simple but effective trading system... This stuff ain't rocket science, after all!

Trade well.

Christopher Smith
TheOptionClub.com

Stock Options Expiration Week

It is options expiration week, which means that if you have any July contracts left in your portfolio it is a good time to take a look at them and figure out what you want to do with them.

In my account, I began adjusting positions last week and will continue to do so this week. Before the market broke out, I was able to buy back my short SPX call options for a .10 debit. The long contracts were left in place, so when the SPX broke out to the upside I was able to sell the longs for a .10 credit. The put contracts will likely expire worthless as they are now far out-of-the-money. Alternatively, the short contracts could be bought cheaply and the risks of expiration avoided.

It rarely makes sense to expose your portfolio to risky position simply to squeeze a little extra from the trade. Consider a 5 point credit spread that you could close for a .10 debit. Are you willing to risk a $490 loss to earn an extra $10?

I am not suggesting that you close all your positions today. What I do suggest is that you look at expiration week from the point of view of a risk manager, rather than focusing upon the extra bit of profit you might collect.

Whether you plan to close your July contracts or let them expire, keep an eye on things this week and don't forget to mind your risk. Often, options traders leave themselves exposed to significant risks simply because they don't want to pay a nickel or dime to close a position.

Trade well!

Christopher Smith
TheOptionClub.com

Stock Market Break Out!

Yesterday was a huge day for the market! This was all apparently triggered by merger news and better-than-expected retail news.

The Dow industrials soared 2.1%, matching their best percentage gain since Oct. 1, 2003. The S&P 500 bounced 1.9%, the NYSE composite 1.8%. The Nasdaq galloped 1.9%. Volume grew across the board. It climbed 10% on the Nasdaq and 9% on the NYSE compared with Wednesday's levels.


When I posted a couple days ago, I was concerned that the market was not making new highs and that we were looking at a triple top. However, we were also looking at a consolidation that would eventually result in a break out. The trick was figuring out whether it would break out to the upside or the downside...

We've been spared the continued suspense. The market broke out yesterday on higher volume. The SPX broke resistance and has made a new high. What we're looking for today is confirmation, meaning we want to see the bulls exploit this breakout and push the market higher. Right now, the market is flat.

The chart above clearly shows the breakout. You should also note that a green (bullish) MarketClub Trade Triangle appeared. If you're not familiar with these indicators, understand that you would not trade each time a triangle appears on a daily chart. Rather, the recommended method involves using longer time frames (i.e., weekly and monthly charts) to identify the longer term trend and then use shorter term charts for entry signals. Yesterday's trade triangle is a potential entry point for the S&P 500.

My portfolio is little changed since I last updated you. I have made some adjustments, but those were due primarily to the approaching expiration. I have started rolling into August and shutting other profitable positions down. Yesterday's surge may see my roll one or two bullish time spreads into vertical spreads, but I don't expect that a lot of modification will be needed.

Good trading!

Christopher Smith
TheOptionClub.com

Options Mastery Series 2007 Edition Now Available

On July 2, 2007, I posted to the blog about Options University's 2007 edition of their Options Mastery course being re-released. The day for the re-release is today!

Options Mastery Series 2007 Edition

Options are increasingly becoming an important wealth building tool. You probably already appreciate this fact since you're reading my blog. However, with the NASDAQ now poised to enter the options market we are going to see more efficiencies and even better trading opportunities than we have in the past.

If you are new to options, or if you have not yet mastered the subject, this is an excellent opportunity to take a step in the right direction. Options are the only tool I am aware of that allow you to reduce your risk in the market, while also leveraging your opportunity for profits. The key to unlocking their potential is not a piece of software or trade advisory service, but simply a thorough understanding of how options work.

The reason I recommend the Options Mastery course is because I have evaluated several educational programs. I have spoken with students from other companies that have spent tens of thousands of dollars on multiple courses, "PhD" programs, etc., and still have not been introduced to material critical to their success as options traders.

What do you need to know?

At a minimum, I think you need to have an understanding of the options pricing model. You do not need to calculate options prices yourself, but you do need to have an appreciation for those factors that will effect the value of an options position and how that position will respond to various changes in the market. If you do not have such an understanding, you are simply "hoping" and "guessing" about whether your trade will turn profitable.

An understanding of synthetic and embedded positions is also important, as these are foundational to being able to execute intelligent position adjustments for purposes of reducing risk, taking profits off the table, and responding to changes in the market. I see too many traders adjust themselves from a losing position to a bigger loss, simply because they do not understand these concepts.

There is more, of course. However, you probably get my point.

So, why Ron Ianieri and his course?

Ron is a true professional. He learned his craft on the trading floor. His skill and knowledge as an options trader was recognized and he became THE specialist for Dell options when Dell was an exploding, hot stock. Ron possesses more than an academic understanding of options. His invaluable experience, along with the academic knowledge, was poured into a training course for new floor traders designed to prepare them to walk out onto a trading floor and compete with the seasoned veterans. That trader trainee course is the nucleus of Ron's Options Mastery course.

Options Mastery is a complete course.

The course consists of a series of DVD videos featuring instruction from Ron Ianieri. I have a complete copy of this course in my office and I still pull video discs off the shelf for a refresher course on various topics. Trading is just like baseball... It's all about the fundamentals!

The course goes on sale today at 12:00 p.m.

If you follow the link before that time, you'll see a live video by Ron and a count down to when the course goes on sale.

http://www.optionsmasterycourse.com/

There are a limited number of courses available. I know some people think this is a marketing gimmick, but I can tell you from past experience that this is no gimmick. Options University stands behind each course and supports their customers. They limit the number of courses so that they can provide the needed support. It's good business for them because they have happier clients and customers, and good business for those who purchase the course.

The course does sell out, however. During the last release, the course had to be pulled off the market ahead of time because they had sold all available copies. The point is that if you're ready to proceed with your options education, don't let procrastination stand between you and the furtherance of your goals.

If you have questions, please feel free to ask. I'll do my best to answer them. If I'm not able, I'll forward them over to the folks at Options University.

As always, good trading!

Christopher Smith
TheOptionClub.com

MarketClub Trade Triangle on the S&P 500

The market saw a fair amount of selling yesterday, which accelerated heading into the close. Volume was high, which is an indication of institutional selling. The Nasdaq sank 1.2%, the NYSE composite and S&P 500 dropped 1.4%, the DJIA fell 1.1%, and small caps fared the worse, with the S&P 600 shedding 1.8%. One bright spot was that leading stocks seemed to be holding up.


This morning, the bulls have regained some of the ground lost yesterday. The overall market remains in a confirmed rally, but I am questioning how much additional upside we'll see this year. If you look at a chart of the S&P 500, we made a high in June of 1,540 and have now been turned back twice since then. The inability of the market to make a new high does not bode well for further price gains.

However, notice the bottom of our current range. As this formation tightens up, it will likely break out. The question is whether the breakout will be to the upside or downside. You will get differing opinions on this. Some favor the prior trend. The fact is that it can go either way.

My options portfolio continues to maintain a bullish bias, but I will be keeping a close eye on things going forward. A range bound market is good for me, as I can continue to pull in short options premium. However, if we see a downturn, it will be time to pull back on those positive deltas and consider a more bearish profile.

Good trading!

Christopher Smith
TheOptionClub.com