SK Options Trading

After an impressive rally of over 80% from the lows made in March 2009, the US stock market looks ripe for another plunge south. This rally was never sustainable, rather than being built on solid fundamentals and a genuine economic and business recovery, it was merely the result of multi-billion dollar bailouts, near zero interest rates and the feeling that no matter how bad things get, the government will save the day and stop any Armageddon scenario.

Although this may be true, the government may indeed be able to prevent the apoplectic scenarios many feared would eventuate during the financial crisis, this does not mean that the governments and central banks of the world can conjure strong, consistent, sustainable growth in the global economy, nor a permanent bull market in stocks.

Sure pumping trillions into the system and slashing rates to zero is bound to have some effect and give markets a boost, but what now? The markets have had a shot of adrenaline, but it now appears there isn’t much else to get excited about from a bullish perspective.

In fact it is those who are short the market that should be getting excited, especially when one examines the technical position of the S&P and Dow at present.

As the chart above shows, there is a clear head and shoulders pattern on the S&P 500. This is a bearish formation and often considered one of the most reliable trend reversal patterns, so in this case the pattern suggests the trend is changing from up to down. The key points of the head and two shoulders are marked on the chart, but attention must also be paid to the neckline. This acts as a support level until broken, when it then becomes a resistance level. Also a neckline with a negative gradient, as is the case above, can be considered a more bearish formation than one with a flat or positively sloping neckline. The fact that the neckline is broken was the last confirmation we needed to become bearish on the S&P 500 and equivalent stock indices.

Looking to a shorter time frame, the green circles highlight the semi-bullish technical signals; the RSI is at 30.28 which is nearly in the oversold zone and the Full STO which is oversold and may give a bullish crossover. There is always conflict between technical signals, however the skill to executing a successful trade is in the trader’s ability to weigh up the different indicators and come to a conclusion on the direction of the market.

Another technical factor that contributed to our conclusion that US markets are heading lower is the “Death Cross” and appears to have just occurred, or is in the process of happening. This is when the 50 day moving average comes down and breaks down through the 200 day moving average and it is a bearish signal.

We do not have to look far to find a case where the Death Cross worked out exactly how it was theoretical meant to.

Although we do not foresee a decline as rapid nor as severe as that in the chart above, we do see a decline worth trading, so we are currently short on the S&P 500, and we will continue to build our short position on any mini rallies in the market.

Our premium options trading service OptionTrader, is currently averaging a return of over 40% per trade, in less than 40 days per trade. The service only costs $99, so one trade of $1000 at the average return of 40% bags a $400 profit, paying for your subscription more than four times over!

We aim to optimize our returns using options to limit our risk and maximise our returns, and anticipate great returns from this upcoming decline in the US stock market. Get on board now by visiting our website www.skoptionstrading.com for more information and to sign up now!

Considering the chart above, gold appears overbought and prime for a drop.  The relative strength index is at 72.68 and above the 70 level which would normally be a sell for us.  Although we always load up heavily on gold when the RSI is on or below 30, we never sell when the RSI hits 70 during major rallies. 

Why?  Well, simply because when gold decides to go on a run it generally disobeys the RSI overbought reading as it simply continues higher.  

A textbook case of this is during that run to $1225 in late 2009, the RSI was well above 70 in early November while gold was just $1100.  Selling in early November because of the RSI reading would have missed a whole $125 move upwards.  And shorting the yellow metal at that time would’ve proved fatal.  With this example fresh in our memories, we will not sell gold when the RSI gives us a sell signal during major rallies, and the current RSI reading 72.68 does not deter us from being long gold.

Prior to breaking the $1033 major resistance with a follow through to over $1200, gold broke the $720 mark which was previously another major resistance.  From $720 gold subsequently rallied to $1033, a move of over 40%.  Gold made another 40% move when it surged through the $500 barrier to $720.  

One may infer from these observations that we are presently likely to get another 40% move.  

Considering the breakage of the $1033 resistance area, this gives us a gold price for the present move of $1446.20.  This is a rough estimate but it would not be unreasonable to expect gold prices to move up towards $1400/ounce during this major rally, and then when one factors in the possibility that these large moves could become even larger than 40% as the gold bull market progresses and becomes more volatile, prices higher than $1400 appear possible.

We normally look to the ultimate inverse gold price indicator, the US dollar, for more clues on what gold prices might do and when.  But since gold and the USD have recently been moving up together, this analysis technique isn’t too helpful.  However, investors should not lose faith in the gold bull market simply because this inverse relationship hasn’t worked recently. 

One should keep in mind that in the last gold bull market, gold and the US dollar moved up together, so it is likely that this could happen again.  Also, the fact that gold is rallying in spite of USD gains is a sign of great strength in the yellow metal. 

We think that in the long term, as the USD resumes its bear market down trend, gold prices will continue to move higher.  In the shorter term we believe that if the Euro should find its footing and begin to rise, as a result of perceived improvement in the sovereign debt issues in Europe, the USD will drop back slightly and gold price will likely take a hit.  For now, gold has become a safe haven investment sparked by unstable conditions in Europe.  

An improvement in European debt conditions would likely take away some of the premium presently given to gold.  However, if this should occur we expect gold’s price decline to only be temporary, since USD weakness will ultimately drive gold prices higher.  Essentially this could work out as a win-win situation for gold, albeit with the second win scenario of EURO improvement slightly delaying gold’s rise.

The bottom line is that the major rally beginning with the break out above the previous all time high of $1033 is not over yet.  We will likely see $1300 plus very soon.  And, we believe that gold did not recently break above its December 2009 high of $1225 just to rally to $1249.  There is more to come! 

As we are now trading at all time highs, we are in unchartered waters.  Volatility should be expected, and in large doses.  Short term, gold could drop back to $1185.  Ideally, however, we would like prices to consolidate at these current levels so that $1225 will become a support level and a base for the next move up. 

To ensure that you optimize your investing and trading returns from the next move, please take a look at our website www.skoptionstrading.com. Recently our premium options trading service OPTIONTRADER has been putting in a great performance, with an average gain of 42.73% per trade, in an average of just under 38 days per trade.

OPTIONTRADER: 

Subscribe for 6 months - $99.00

Subscribe for 12 months - $179.00

Subscribe for 6 months - $99.00

Subscribe for 12 months - $179.00

On the 8^th of December 2009, we wrote an article exposing what we thought was an excellent opportunity for option traders. Gold was correcting from its end of year rally to $1225 and many believed that the yellow metal was heading back to three figures. However we disagreed and suggested a risky but potentially more highly profitable trade for those who also believed that gold prices were not going to drop below $1000. In this article we wrote, “We think that any put contracts expiring in the next few months, with strike prices below $1000/ounce of gold (or equivalent for GLD) are worthless. Therefore we think their prices will soon fall to reflect this, and so we are of the opinion that selling these puts is a good trade, with the plan being to purchase them back for mere cents as they approach expiration.”

“With gold enjoying strong support at about $1020-$1033 and GLD getting a great deal of support at around $100, selling out of the money Jan-10/Feb-10/Mar-10 puts on GLD with strike prices of roughly $95 appears to be a good idea to us, we would view the sale of those contracts as money in the bank”.

We suggested that investors who also believed gold was not going to fall below $1000, to short sell the $95.00 GLD Puts series (or equivalent gold option contracts), selling Jan-10 contracts trading at $0.32, Feb-10 at $0.76 and March-10 at $1.26.

Out of those contracts we suggested to short sell, ALL expired out of the money, meaning that they all ended up being worthless. So investors who short sold these puts could’ve have bought them back for as little as 1 cent on the day of expiration. Shorting contracts at $0.32, $0.76 and $1.26 and then buying back at $0.01, or even $0.05 is a very profitable trade, offering a significantly reward that we believed significantly outweighed the high risk of the trade.

This trade contains a higher level of risks than most trades we recommend in OPTIONTRADER. An example of a typical trade can be found here

Looking at gold going forward we are very bullish, since gold is making higher highs and higher lows and has a fairly clear path to $1200 again.

The situation that threatened to cast a shadow over the gold rally appears to be calming. We refer of course to the PIIGS, in particular the troubles in Greece, which were causing the EURO to slide and subsequently a rally in the USD, placing downward pressure on gold since it is priced in US dollars. We saw a relatively strong auction for Greek bonds last week and with more talk of bailout backing from the EU and IMF, it appears the situation is easing.. for now.

Given these factors and the conclusion that gold prices are heading higher, the question is how to best play the next move up in gold. Some like holding the physical metal, some the mining or exploration stocks, however we prefer options. Their versatility and adaptability means that any investor can take advantage of them and can tailor the risk in a trade to suit ones aversion to such risk, and by effectively managing the risk against the potential reward in the trade, we aim to optimize the risk/reward ratio for our subscribers and clients.

If you are tired of underperforming gold stocks and are interested in finding a different way to play gold, or are just interested in options trading and the service we offer, please visit our OPTIONTRADER page for more information. Subscriptions to OPTIONTRADER are only $99 for six months for $179 for a year, this includes being able to email us anytime with questions or comments.

Subscribe for 12 months - $179.00

Sam Kirtley

26th April 2010

Recently market action has made things very busy at OPTIONTRADER, our premium options trading service. Since our last update we have closed another 7 trades, with an average gain of 51.17% in an average of 37 days per trade, and in the last two months our subscriber base has more than doubled. For those interested in subscribing, below is a list of the closed trades since the last OPTIONTRADER update:

Bought GLD JAN-11 $100.00 CALLS @ $14.00 on the 6/10/09

Sold for $20.05 on the 18/11/09

43.21% Profit 43 days.

Bought GLD JAN-11 $100.00 CALLS @ $12.70 on the 29/10/09

Sold for $20.05 on the 18/11/09 57.87%

Profit in 20 days

Bought SLV JAN-11 $18 CALLS @ $2.20 on the 29/10/09

Sold for $3.40 on the 23/11/09 54.55%

Profit in 25 days.

Bought SLV JAN-11 $20 CALLS @ $1.70 on the 29/10/09

Sold for $2.30 on the 4/12/09

35.29% Profit in 36 days.

Bought GLD JAN-11 $105 CALLS @ $10.80 on the 29/10/09

Sold for $18.00 on the 4/12/09

66.66% Profit in 36 days.

Bought GLD JAN-11 $110 CALLS @ $10.60 on the 29/10/09

Sold for $15.90 on the 4/12/09 50%

Profit in 36 days.

Bought GLD JAN-11 $105 CALLS @ $12.00 on the 6/10/09

Sold for $18.00 on the 4/12/09

50% Profit in 59 days.

OPTIONTRADER prides itself on being versatile and adaptable to suit market conditions. We do not buy and hold and hope, we are prepared to go long or short on any entity if we believe the opportunity is there. Also, one does not need a comprehensive understanding of options trading to use this service, all signals are clearly explained and easy to follow.

Also although options trading does carry risks, by keeping a close watch on the markets and combining our expertise and experience together with ongoing research, we are able to limit the downside of any trade. Although we of course do incur losses from time to time, our winning trades far outweigh our losers and we place a large emphasis on limiting risks involved in any options trade.

We use a balanced portfolio and suggest weightings with each trade as to give a realistic representation of how subscribers would've performed with the recommendations.

All paid subscribers to OPTIONTRADER can email us questions or comments anytime, and we will respond as soon as possible, using within 24 hours.  

All this is just $99 for 6 months, or $179 for one year! We are currently formulating our trading plan for the coming months and expect to be placing a number of new trades in the coming weeks, so subscribe now to ensure you do not miss out on our trading signals!

Subscribe for 6 months - $99.00

Subscribe for 12 months - $179.00

If you have any questions regarding OPTIONTRADER or would like more information, please email skoptionstrading@gmail.com or visit www.skoptionstrading.com