By Chris Ebert

Ever notice how radio content varies with the frequency?

This may come as surprise to those in the younger generation who are apt to get their music on devices other than old-fashioned radios, but the content indeed varies. In most cities, there are very few Top-40 stations near the 88 Megahertz area. Rather, that range tends to be populated with alternative themes – classical music, religious outreach and the like.

Generally, it really isn’t until one gets up to approximately the 94 Megahertz range that one encounters popular music – the so-called Top 40 genre. Sure, there are exceptions in some cities; but it’s not the rule. Popularity seems to prefer certain frequencies.

fm-stereo

Popularity among stocks has a similar tendency. There are certain Temperatures in which the S&P 500 tends to broadcast well, and others at which it is ignored by traders.

An S&P 500 Temperature in the 100 to 200 range has typically been a popular place.

Below 100, while attractive to alternative types of traders (buy-the-dippers, short-sellers, derivatives traders, etc.) is not an area where the average individual trader is likely to feel tuned in. Likewise, most individuals are just as ill equipped to tune in when the Temperature tops 200 as they are to tune into a radio signal over 108 Megahertz. The environment when the S&P Temperature is below 100 or above 200 is not typical, and thus not popular for most.

There are very few radio stations that can advertise that they are at the top of the charts broadcasting at 88 or 108 Megahertz; but there are countless ones broadcasting a few Megahetrz either side of 100.

There’s a reason for that. Popularity!

An S&P 500 Temperature in the 100 to 200 range is like a close friend – it’s familiar… rational… comforting. Anything outside that range is likely to be appealing only to those who prefer alternative music. At the moment it seems the only ones who are likely tuned in to the stock market are alternative-music fans. Not everyone can ride out a 400-point daily drop in the Dow (like the one that occurred last Friday) followed by a 300-point gain (like the one that occurred the next Monday). But some folks love that kind of thing. Others just turn off the radio.

snp-temperature-89

* Option strategies referenced above are analyzed for profit or loss on expiration day only and are opened using an at-the-money strike price, 4-months to expiration, using options traded on a broad-based ETF such as $SPY (NYSEARCA:SPY)

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

 

Related Options Posts

The End of Sideways S&P Moves:

Profit Takers Will Like These Options

S&P 500 Awesome Chord Progression

By Chris Ebert

It will come as no surprise to most traders that recent stock prices have been going nowhere fast. The S&P 500, for example, has mostly hovered within approximately 20 points either side of 2180 ever since July. That’s a mighty tight range by historical standards; generally the S&P tends to have much wider swings. So, such a tight range for such a long period of time can be surprising.

From an option standpoint, however, such a tight range is not unexpected.

There are only four basic trading environments during a Bull market, each of which correlate fairly closely to the profitability of simple option strategies.

2016-09-05_2112

  1. Lottery Fever – essentially a euphoric buying frenzy (green zone)
  2. Digesting Gains – in which every rally tends to end with profit taking (blue zone)
  3. Resistance – in which the S&P has hit a brick wall it cannot easily cross (yellow zone)
  4. Correction – a pullback that generally leads into the next leg up (orange zone)

In July the S&P entered the Digesting Gains stage, as defined by the profitability of certain Long Call and Covered Call options on the S&P 500. It’s generally not that the options themselves have any effect; rather the profitability of those particular options has tended to correlate with an environment of digestion over the past years and decades. The options can be considered to be a technical indicator of sorts, much like a moving average or any other type of indicator a trader might employ.

The S&P moves by the path of least resistance, so it can go pretty-much anywhere. It all depends on the news of the day – catalysts that propel stock prices one way or the other. But the overall reaction to such news can keep the S&P stuck in a rut in certain environments.

That’s the environment the market is in right now. It’s certainly still a Bull market, but it’s not quite bullish enough for a euphoric Lottery Fever buying frenzy. That doesn’t mean a catalyst won’t come along and ignite Lottery Fever. But, it does explain why the S&P has gone almost nowhere since July – it is sitting quietly on the sofa, digesting a rather large meal.

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

Related Options Posts:

Profit Takers Will Like These Options

S&P 500 Awesome Chord Progression

Orange Line of Violence Often Influences Stocks

By Cameron Brannagan

Description: Recently, a number of tourists from Gulf states have begun to visit Bosnia, with some even purchasing property. Are we looking at a housing market boom?

Of all the places one might expect to see tourists from Gulf countries, Bosnia may seem as an unlikely choice, at first glance. However, in recent years a number of citizens from Gulf states have chosen this country as their favorite summer destination, some even deciding to purchase property in the country. Of course, such an influx of foreign capital into the housing market of a country the size of Bosnia would surely spark interest from all sorts of analysts and brokers, including WMoption.

A New Hope?

2016-08-23_0006It is no secret that the economy of Bosnia and Herzegovina has never truly recovered since the disastrous civil war in the early 1990s, and those more involved in this subject would add that their economy was lagging behind even by old Yugoslav standards. Even during the Cold War era, Bosnia and Herzegovina was considered one of the least developed republics within Yugoslavia. However, after the aftermath of the civil war complete with the political nightmare that is their government, investors would do everything in their power to avoid this part of the world.

And yet, their economy may be getting some help from a somewhat unlikely source, and for reasons we will get to in a little while. In short, after the Arab Spring pretty much destabilized the countries that Arab-speaking Gulf residents would normally go to in order to escape the scorching heat in the summer months, they started looking for a more stable, if not friendly and safer location. And it seems as though they have found it in Bosnia.

It turns out that the mountainous country where roughly half of the population are Muslim has the perfect blend of mild climate, affordable costs of living and the Arab-friendly environment that is in very short supply in these times. Normally, they would go to Libya and Tunisia, or maybe one of the tourist hotspots in Egypt, but it seems they have found a far more viable alternative. And it seems at least one part of the country is waiting for them with open arms, direct flights, new facilities and no visa requirements.

The Other Side of the Coin

It is certain that the faltering businesses and economy in general are benefiting from this influx of affluent “residents”, but a large part of the secular Muslim community is suspicious of a sudden influx of traditional Arab culture into the mix. People dressed in traditional Arab robes tend to stick out among people who are used to drinking alcohol and wearing Western clothing, and with more and more businesses specializing in order to cater to this new clientele, a huge part of the lives of ordinary citizens is disappearing forever. This has ruffled quite a few feathers even in Muslim parts of Bosnia.

While praying was once customary in people’s homes and places of worship, it is not uncommon to see groups of Arab-speaking tourists praying in public spots all around Sarajevo. Also, a great number of restaurants and coffee shops have decided to eliminate pork, alcohol and other “haram” products in a bid to attract some new customers.

However, the appeal of the local climate and affordable prices is still far too great for some Gulf residents, some of which have even bought houses and other real estate. These people feel welcome nevertheless. In fact, their numbers seem to be increasing every year, with 13,000 visitors from the UAE in 2016 alone, which has almost doubled from 7,000 who came last year. By comparison, in 2010, the number of visitors from UAE was 65 – in total.

Conclusion: Numbers Don’t Lie

Unfortunately, due to its political system, Bosnia lacks any kind of central tourist authority and local estimates are the only source of raw numbers. According to those, roughly 50-60,000 Arab tourists visit the country on an annual basis, and roughly one in four has decided to purchase some property in the country as well. So far most of this property is located in the areas where Serbs used to live until the war, and many analysts fear that this practice may bring further instability by giving the Serbian part of the country yet another reason to secede.

As for investments themselves, most analysts as well as ordinary citizens agree that they are welcome and beneficial, as Arab-speaking tourists have shown no intention of actually moving there. However, the lack of legislation and central authority is seen as a major stumbling block that will continue to hinder the country's progress for years to come.

By Chris Ebert

There are times when it makes sense to follow an uptrend to its limit, and others when taking profits after rallies can be beneficial especially when there is an opportunity to buy back into positions on the dip. The ability to tell the difference can certainly come in handy.

There are relentless near-continuous rallies at times, and other times the rallies have pauses for consolidation and profit taking.

Of course, nobody can predict the future with certainty, and neither can any technical analysis system. However, an options analysis of the S&P has been accurate a fair percentage of the time at solving this dilemma for traders.

OMS 08-06-16

When the S&P 500 rises quickly enough so that expiring ATM $SPY 4-month Straddles* (opened 4-months earlier using a then at-the money strike price) are profitable, that is the green stage on the chart, known here as Lottery Fever. The name Lottery Fever comes from unrealistic euphoria that tends to infect traders, causing them to abandon the idea of basing their trades on economic data and corporate fundamentals, and instead focus their attention on buying stocks merely to get on the bandwagon with other traders as stock prices go up, up, up.

Currently, though, the S&P has not yet (more…)