Time to adjust your options strategy
Today's Financial News - Posted June 2, 2009
After taking gains of 90% and 25% on two options plays this week, TFN’s Andrew Snyder thinks it’s high time for some covered calls on the market!
by J. Christoph Amberger
Baltimore—TFN: I think there’s one thing we’ll all agree on: Even in the most sedate of market climates, the options market can be confusing. There’s lots of jargon, lengthy calculations, and enough leverage to cause Nancy Pelosi’s forehead to crinkle! But there’s really no reason not to take advantage of their powerful potential.
Look at options like a magnifying glass: They amplify the moves made by the underlying stock or index. Upward and downward. So when a stock makes a 10% move, its options can soar by three, four or even five times that amount… or even much more.
Now, if an investor applies this leverage indiscriminately across his portfolio, trouble will brew. Like a magnifying glas left unattended in the bright sun, it can incinerate your portfolio. But when handled with care, options can create the kind of wealth that changes families. (For the richer, hopefully! For the better, ideally…)
With this in mind, I’ve never quite understood why some of the best-selling options advisories—I won’t name names, but you know who they are!—abandon their readers after they make their recommendation. Sure, I get how they’re rationalizing it: “People enter at different price levels.” “By the time we issue a sale, the price may have moved.”
Well, duh! Let’s not forget, they can always claim top gains in their tracking portfolios!
From a subscriber perspective, it’s like calling a cab… and have the driver stretch out on the back seat with a Penthouse while you drive yourself to the airport! If you crash on the way, it sure ain’t the cabbie’s fault!
A practical options strategy requires that you either pay attention to your options portfolio yourself… or have someone do it for you! At TFN Strategic Trader, we’ve detailed TFN investment maven Andrew Snyder to constantly evaluate the market—and adjust his options formula accordingly.
Speaking of the markets: The equity markets have by now extended their year-to-date range and moved back into territory we have not seen since early January. Options market have magnified these gains exponentially. So how is Andy handling this?
“When the markets were range-bound, I turned to low-risk (or ‘low-beta’) stocks. That move lowered risk and led to market-beating gains. When the bulls came rushing back, I went for high-beta stocks.
“Now here’s the hitch: Even without leverage, these positions have a tendency to overshoot the market. Add the power of options to the mix and you instantly have the extra kick you need to lock in gains worth bragging about! Have a sec? Then let me brag: Just in the last few days, this short-term change in focus has paid off gangbusters: My TFN Strategic Trader subscribers locked in gains of 90% and 25% in the last 3 trading days. One of our open position is currently up by 209%!
“Of course, the bulls will run out of breath eventually. The current exuberance on Wall Street will not last much longer. But don’t you worry: I’m way ahead of the market. I’ve adjusted my formula. Last week, I recommended a covered call position for TFN Strategic Trader subscribers. The time-tested strategy is one of the most reliable ways to lock in profits when the markets begin to lose some steam. How’s it working out?
“Right now, it’s up 37%… and climbing.
“This week’s play is going to require yet another tweaking of the strategy. GM’s bankruptcy filing added a lot of fuel to an already hot fire. It is going to be interesting.”
And, apparently, profitable! So as you prepare your strategic investment plan for the second half of 2009, consider Andy’s TFN Strategic Trader as a resource. But only if you don’t mind comprehensive door-to-door service, with detailed updates and strategy adjustments… and timely sell alerts to lock in profits and limit losses.
Next Article: Playboy’s (NYSE:PLA) numbers don’t add up to much in regard to the FriendFinder IPO
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