By Chris Ebert

Note to readers: I’ll be away for a few days. The normal detailed options analysis of the S&P 500, and its implications for the stock market, will return Sunday July 27.

As of July 17, the S&P had not breached the 1930 level – an important level because of its effect on Long Call* and Married Put* option trading, and the historical implications those option trades have on the emotions that drive future stock prices. Long Calls and Married Puts won’t suffer losses unless the S&P falls below 1930 over the next several weeks.

Historically, as long as at-the-money Long Calls and Married Puts are profitable, bullish traders are so confident that they buy every dip.

Options Market Stages 07-17-2014

Click on chart to enlarge

Last Sunday, evidence was presented here that short-term pullbacks in the S&P 500 are not likely to interfere with the ongoing Bull market rally unless the S&P falls below the 1930ish range. A move below would likely create a brick wall of resistance at the recent high, as traders would tend to acquire a “sell the rip” mentality, at least temporarily, after a breach of 1930.

Last Sunday’s complete analysis is available here: Stocks Digesting Gains And Nothing More

As long as the S&P does not fall below 1930 in the next several weeks, any sell-off, no matter the cause, can be argued to be nothing more than normal digestion of recent gains in stock prices. The analysis in the link above continues to apply.

As long as a trader is practicing good risk-management (with proper position sizes, stops, and/or options as hedges) there is no reason to panic, at least until Long Calls fail to profit; and even then, panic is likely unjustified unless Covered Calls fail too.

Unlike many traditional forms of market analysis, the options analyses presented here do not change. They are not affected by economic news, no matter how severe. The consistent view provides traders with a semblance of certainty – something to cling to in uncertain times – which can provide an edge by helping avoid potentially damaging trades based on emotions.

*All strategies involve at-the-money options opened 4 months (112 days) prior to this week’s expiration using an ETF that closely tracks the performance of the S&P 500, such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY)

The preceding is a post by Christopher Ebert, co-author of the popular option trading book “Show Me Your Options!” He uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. Questions about constructing a specific option trade, or option trading in general, may be entered in the comment section below, or emailed to OptionScientist@zentrader.ca

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 Related Options Posts:

Stocks Digesting Gains And Nothing More

Proof S&P Won’t Top 2050 Through August

Selling Puts Vs. Buying Calls In Bull Markets

 

This article is contributed by Eddie Steiner

As individuals and companies rely more and more on mobile communications devices such as smartphones and tablets, so the number of apps that are available has increased, carrying out everything from banking transactions to finding the nearest coffee shop.

Today’s consumers are demanding apps that are well-designed, user-1friendly and perform well. Maximising mobile user experience or ‘ux’ is essential if the app is to achieve its key objectives, which are to generate new business, enable easy access to stored information, and to monitor the progress of transactions in real-time.

Not so long ago, it was only larger financial institutions, such as banks and multi-national investment companies, that could afford to design and implement secure online access software for their clients. However, as the mobile app industry has matured, there are now numerous software development companies specialising in designing reliable, high quality, bespoke, affordable applications with ux at their core.

Today, small investment companies that fail to develop an app for mobile devices across multiple platforms will find themselves at a serious disadvantage. It has never been easier to acquire a bespoke app designed to source new investment opportunities and monitor existing investments in real time, from almost anywhere in the world and at any time of the day or night.

The first step for small investment firms that decide to introduce a mobile app is to identify a company they can work closely with to design and develop the most effective solution. A quick search of the internet will reveal literally dozens of app developers, so it will be necessary to spend some time checking out which areas they specialise in and obtaining a list of previous customers who are prepared to provide references. Ideally, speak to friends or business colleagues who have employed such companies in the past.

A software development company such as Worry Free Labs, LLC will first ascertain precisely what type of customer experience is required. In the case of investment companies, the app user is likely to be a ‘hunter’- someone looking for specific information or to carry out a predetermined task. (more…)

By Jeff Pierce

The general markets have been on shaky grounds per my timing signal in March – June and while the markets have rallied since then it just as easily could have gone the other way. Trade setups were quite scare during that period, at least they were for me and the way I analyze bullish setups but things seem to be getting back on trace. With all my time frames and long term trend up it’s more safe now then it has been in quite some time to commit a larger than normal amount to long trades and to be lightening up on any remaining shorts you may have.

In May, both the Nasdaq and Djia made significant strides for the bulls but it was my longer term trend indicator that remained stubbornly bullish up until early July. With that now green I’m looking forward to earnings season to provide many new trading opportunities. If that doesn’t happen and new leaders fail to emerge then we could have some trouble with the market going forward. Watch for clues and new leaders or lack of new leadership.

indu tsx (more…)

By Chris Ebert

Last week, an analysis of options here presented evidence that the S&P 500 would not climb above the 2050 level through at least the end of August. As always, every attempt was made to offer facts, not opinions. Facts give traders a real edge; opinions provide nothing more than false confidence.

It is a fact, this week, that the S&P 500 is in the process of digesting its recent gains. With stock prices collectively up nearly 10% off the April lows, it is quite understandable that some traders may see an opportunity to adjust or re-balance their portfolios, likely selling some stocks to avoid the possibility of giving back all those gains.

An over-abundance of sellers results in some sellers not finding a buyer at their asking price. If those sellers insist on unloading their shares, they must lower their asking price to execute a trade. Other traders observe trades executing at lower prices and get spooked, causing them to put some of their own shares up for sale as well, in turn adding to the glut of shares for sale.

In a Bull market, like the current one, stock prices usually reach equilibrium quickly, since there are plenty of buyers willing to buy the dip. The stock market needs time to digest gains – time to reach equilibrium – time to put stocks in the hands of bullish “buy the dip” traders and take them out of the hands of nervous traders sitting on huge unrealized gains.

Without digestion, nervous owners would have difficulty pushing stocks to new highs, hampered by their urge to take profits. Buy-the-dippers aren’t nearly as nervous; so, digestion is actually a necessary part of a healthy stock market. It is true that digestion run amok can cause major pullbacks, corrections, and yes, even Bear markets. However, the following analysis will show that for now the S&P is digesting gains, only this and nothing more, quoth the options.

Stocks and Options at a Glance 07-12-2014

Click on chart to enlarge

*All strategies involve at-the-money options opened 4 months (112 days) prior to this week’s expiration using an ETF that closely tracks the performance of the S&P 500, such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY)

You are here – Bull Market Stage 2 – the “digesting gains” Stage.

On the chart above there are 3 categories of option trades: A, B and C. For this past week, ending July 12, 2014, this is how (more…)