Chris Ebert began contributing to zentrader.ca in 2011 in an effort to spread knowledge about options trading. Now beginning his 5th year at zentrader, Chris is as committed as ever to demystifying the world of options.

Here is a link to the article that started it all ==>  Seeing Options from Both Sides

Chris has a way of explaining options scientifically, yet spelled out in easy to comprehend everyday terms, which earned him the moniker OptionScientist. The Ask the Option Scientist segment published by zentrader has helped countless traders learn the ins and outs of option trading.

In addition, Chris developed several options indicators that help predict the behavior of the S&P 500, including:

  • The #CCNPI – S&P 500 Covered Call/Naked Put Index
    This index helps traders discern Bull markets from Bear markets
  • The #LCMPI – S&P 500 Long Call/Married Put Index
    A reliable indicator of strong trends as opposed to weak onesSNP Temperature 42
  • The #LSSI – S&P 500 Long Straddle/Strangle Index
    This index pinpoints possibilities of corrections and also breakouts
  • The Options Market Stages
    These stages help traders determine the nature of the current trading environment
  • The S&P 500 Temperature
    A pure and simple gauge of bullish sentiment
  • The Orange Line of Violence
    This line has become a prominent indicator of upcoming large moves in the stock market

As always, comments and questions about specific option set-ups or option trading in general are welcome anytime. Just enter them in the comment box below or send them to:
OptionScientist@zentrader.ca

The preceding is a post by Christopher Ebert, Chief Options Strategist at Astrology Traders (which offers subscribers unique stock-trading perspectives and options education) and co-author of the popular option trading book “Show Me Your Options!” Chris 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

By Astrology Traders

The following is an excerpt from this weekend’s Astrology Traders update.

Real Estate

In February I made a projection for housing stating that “by June 2015 the housing numbers will take a setback.”  On Friday June 12th Alan Greenspan said in an interview ” We haven’t come out of the bottom of the housing collapse, we are in a secular stagnation.”  The problem for many homeowners is the lack of equity.  Many homeowners still owe more on their home than their original mortgage.  Homeowners are either stuck, or feel intuitively, a desire to stay put and not take on additional debt.  The lack of inventory in many markets is causing housing prices to climb.  This is a double edge sword as borrowers can’t afford the rising home costs and homeowners don’t want to budge and list their home if there are so few choices.  This trend will likely continue through 2016.

Bonds

We are entering a more critical time for the bond market towards the end of June.  Saturn will enter Scorpio again on June 14th, suggesting a final opportunity to restructure banking debts from bond deals that went sour, most likely the bond bets from the Greek deal that blew-up when MF Global went bankrupt in October 2011.  The Fed will have until September 17th to get it done.  The outcome is going to bring more bearish volatility in the Fall for bonds and stocks.

tlt

June 10th- June 22nd: Next week could see liquidity from a powerful banking source, potentially Japan’s central bank, pumping money into Treasuries and the markets.  This could bring a bounce for bonds next week, however, June 24th is punctuated as a volatile reversal of these efforts.  Last week I highlighted August 4th as a critical date.  Although the dollar has been quite strong, we may see a reversal for the dollar near August 4th.  Currency volatility will likely increase as well.  Bond and currency volatility June 24th and into the first week of August is very likely.

I am advising caution in all areas.  Usually a market decline brings flows into bonds.  The reverse will likely happen in coming months.  Market mechanisms have been so manipulated that faith is slowly eroding within all asset classes.

The End of The Federal Reserve

While the Federal Reserve has been busy dissolving itself through failed economic policies, China and Russia are forging ahead with the development of the New Silk Road.  The backbone of the system linking China to Russia will be an interconnected network of high speed railways set to open up the territories to transport, migration, agriculture, commerce, and industries making Euroasia the pivotal land mass of the world.  Sir Halford Mackinder predicted in 1904 that the vast resources of the Euroasian heartland could quite possibly become the new empire of the world.

2015-06-14_1803

It could, and if there is a threat to the establishment of the Federal Reserve it is possibly with Euroasia.  In October 2014 China announced its plans for the Asian Infrastructure Investment Bank.  China’s leadership sees this institution as a future regional and, in the end, Euroasian alternative to the U.S.-dominated World Bank.  China has held an open invitation to the U.S. to join its sponsored Asian bank, as a founding governing board member, however the U.S. has declined.  There are many scholars who claim the New Silk Road is the first shot in a competition for world dominance.  The threat to the Clinton Cartel is real–George Soros is among the loudest critics suggesting a new cold war and alarming claims of an imminent nuclear war between the U.S. and China.

While the U.S. and the Federal Reserve continue to pursue endless wars, the world is moving forward into a new age, with or without them.

The Markets

We continue to see a tight range bound trend in the markets.  Again, next week could bring a bullish move with manipulation coming from a central bank.  The move will likely not last, and in keeping with the recent past, reverse just as quickly.  The is a banking problem-debt/insolvency problem- that has a few months yet to be reconciled.  Now is a time to continue to stay in a strong cash position.  We are watching our TLT position for an exit in the near future.

 

 

By Chris Ebert

There is an often overlooked cycle in the stock market that deserves some extra attention these days. Stock prices often experience periods of movement punctuated by periods of stagnation or consolidation. In other words, sometimes stock prices are in a trend and other times they move sideways and make no progress. The alternating periods of consolidation and trend form a repeating cycle of range-bound prices and break-outs.

The cycle can be difficult to discern for traders, but it is especially tough for new traders. That’s because stock prices move every day, and sometimes the moves are big even when there is no overall trend.

Take this past week, for example, when the Dow Jones rose 235 points in a single day on Wednesday. Even with such a violent move, the Dow itself is not really in a trend. That’s because despite recent big moves, the Dow was relatively unchanged for the week. It also has not made much progress for the month of June, or for the year 2015 to date. There simply is no trend right now; the stock market is remarkably range bound.

Range-bound Markets Lead to Breakouts

Range-bound markets often get violent. When neither the Bulls nor the Bears has the ability to make any sustained progress, each group gets more bold. That’s because the inability to make progress has the effect of limiting the risk for each. If a Bull buys stock in a tightly range-bound market, the chances are low that the Bears will be able to drive the price down for any sustained period of time. At the same time, a Bear can sell or short stock knowing that the Bulls are not likely to drive prices sustainably higher. Each ends up spinning his tires at full throttle.

The effect of spinning the tires at full throttle is evident with the huge intraday moves in stock prices that are often observed near the Orange Line of Violence on a chart of the Options Market Stages.

OMS 06-11-15

Spinning the tires at full throttle doesn’t result in any progress as long as there is no traction. However, once the stock market (more…)

By Chris Ebert

Sometimes the S&P falls below the 50-day simple moving average (50sma) only to recover quickly, as it did this past week. When it does recover, there are occasions when that very recovery gives traders the confidence to push stock prices to new highs. Other times, the recovery seems to fizzle out within a few days.50day sma

Why the difference? It may have to do with the Options Market Stages. If the recovery pushes the Options Stages to Stage 5, it tends to spawn a new bullish cycle, which can lead to new highs. If the recovery merely brings the Options Stages back to Stage 3, it may mean the continuation of a stagnant period of range-bound trading that can spawn the next sell-off to a major support level.

Welcome to Options Bull Market Stage 5 (maybe)

When the S&P is in Stage 3 (the yellow zone in the following chart) as it has been for the past several weeks, it generally experiences strong resistance when it tests the highs. This resistance tends to develop into a brick wall through which the S&P cannot go. Stage 4 – the “correction stage” – erases the brick wall

The S&P 500 dipped quite a bit early this week – so far, in fact, that it was deep in what can be considered “correction” territory (the orange zone in the chart). A Bull-market correction can often be considered a great opportunity for traders, because as long as a Bear market does not ensue, the correction usually spawns an impressive rally in stocks; and the rally often breaks right through the previous brick wall. That can send stock prices to new record highs.

The only fly in the ointment for the Options Market Stages this week is that the dip into “correction” territory was so brief (only lasting one day) that it does not even show up on the weekly chart of the Options Market Stages. Thus there are questions as to whether it really represents a true correction. If it does, the previous brick wall has likely crumbled and the market has entered Bull Market Stage 5. If not, the brick wall could be stronger than ever as Stage 3 is continuing uninterrupted. Note: Bull Market Stage 5 exists in the yellow zone, but is not labeled here (for chart clarity), since it also occupies the same space as Bull Market Stage 3. Bear Market Stage 5 is the red zone.

A longer-term 10 Year History of the Options Market Stages is available.

OMS 06-11-15

* All profits are calculated at expiration, as a percentage of the underlying SPY share price. SPY is an Exchange Traded Fund (ETF), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that closely tracks the performance of the S&P 500 stock index. All options are at-the-money (ATM) when-opened 4 months (112 days) to expiration.
EXAMPLE: If Long Call premium paid is $2 when SPY is trading at $200, the loss is 1% if the option expires worthless.

The Options Market Stages tend to progress in a (more…)