It's a crazy market.
On the whole, we've gone nowhere all week. We fell from 2,200 to 2,100 and a weak bounce from there is 2,120 and a strong bounce is 2,140 and we're at 2,129 on the S&P Futures (/ES) but what a wild ride it has been in between, especially after having such a sleepy summer at the top of the range.
Sadly, that range is from 1,850 to 2,220 (20%) with 2,035 being the 10% line and THAT is where we expect to correct to in this downturn and yes, it's a downturn even if we went up yesterday. Just like a day of snow doesn't mean Global Warming isn't happening, a one-day rally doesn't mean you're not in a bear market – that kind of logic is what destroyed many traders in 2008, when they kept "buying the dips" as stocks fell 5%, 10%, 20%, 40%, even 60% from their highs.
This is why we have our fabulous 5% Rule™, which prevents us from falling for false rallies. I drew you a chart yesterday saying we would fail at the strong bounce line on the S&P (2,140) and guess what, that's EXACTLY where we failed. In fact, the title of the post was: "Thursday: Failure at the Strong Bounce Lines Leads to 5% Correction" so pretty much our job was simply to wait for those strong bounce lines and then go short – not complicated.
The S&P Futures pay $50 per point so the drop from 2,140 to 2,130 has already paid $500 per contract – not bad for a day's work and 2,130 is now our stop line but, hopefully, we get a sharper move down on this wild options expiration day. Remember: I can only tell you what is going to happen in the market and how to make money trading it – the rest is up to you!
This morning, the Nasdaq (/NQ) makes an excellent short as it crosses below the 4,800 mark (with very tight stops above) and that's lined up with 2,130 on the S&P (/ES), 18,050 on the Dow (/YM) and 1,215 on the Russell (/TF) and our system is to wait for 3 of the 4 to cross below than then short the laggard, getting out if any of them cross back over the line – very simple and it limits our losses but not our profits.
We're still bearish, despite the upcoming Fed and BOJ meetings next week and on Monday morning we gave you a nice TZA hedge that is still playable, which we added to our Short-Term Portfolio, to protect our Long-Term Portfolio (because that's the STP's main job). The net of the spread was $900 and, despite all the market gyrations, the spread is now net $3,025, up $2,125 (236%) in 4 days on cash and doing it's job perfectly to protect our portfolio.
That's right, we gave you, FOR FREE, a trade idea on Monday that made $2,125 as of yesterday's close, making 236% in a week. If you spend $3 per day to subscribe to our PSW Report, trades like these will be delivered to your inbox each morning AND you will be able to review the commentary from our Live Member Chat Room that is 7-30 days old – that's a really good deal – you should SIGN UP HERE!
Or, you could also sign up for our Options Opportunity Portfolio over at Seeking Alpha, and we started that portfolio with $100,000 on Aug 8th of 2015 and today, 13 months and one week later, we will cross the $200,000 mark for a 100% gain in our first year and a bit! We also use hedges in the OOP, as we want to make sure we lock in our gains but we're still playing the market long-term bullish overall – it's just a short-term correction we're expecting.
The positions that are currently in our OOP are on track to make $118,000 over the next 16 months at the moment – that's another 118% if all goes well. Back on May 7th, we did a review and, at the time, we were "only" up $44,500 (44.5%) and we laid out (as we often do) how much money we expected to make from each position. If you want to really learn how to trade and how to organize and plan a portfolio – I suggest you read these reviews and track how the positions actually performed.
Our trades are not all winners but we also teach our Members how to adjust losing positions (if we still like them) and, of course, we follow our core strategy to "Be the House – NOT the Gambler", so we're always selling risk to others – rather than taking it on ourselves. In fact, that link goes back to a Jan 20th Forbes interview where, as an example, I gave Forbes the following trade idea (page 4) using a long trade idea for oil with the ultra-long ETF (UCO):
- Buy 10 UCO July $5 calls for $3.70 ($3,750)
- Sell 10 UCO July $10 calls for $1.55 ($1,550)
- Sell 10 USO July $8.50 puts for $1.10 ($1,100)
That’s net $1,050 on a spread that will pay back $5,000 if UCO is over 10 at July options expiration day (15th). The potential downside to the trade is USO finishing below $8.50 (currently $8.79), where 1,000 shares would be assigned to you for $8,500 plus the $1,050 you already spent would effectively be $9.55 per share or, roughly $30 oil. So our worst case is being long on oil in July at $30 and our best case is making a 376% return ($3,950) on our $1,050 cash outlay. That’s not bad for 6 months’ “work”!
July options expiration day was the 15th and UCO finished at $10.91 so our spread was 100% in the money and paid $5,000 while the short puts we sold expired worthless so we netted $5,000 back on our $1,050 profit and made $3,950 or 376% in less than 6 months. That is how we teach you how to trade and that is how we can make 100% in a year in our portfolio.
Philstockworld is an EDUCATIONAL site – we are teaching people how to trade but, in doing so, we use trades as examples along the way. The idea is not for you to follow what we do, the idea is to show you how you can do the same thing with the stocks you currently play – that's what this is all about, learning how to use options to hedge your portfolio and to PROTECT your CASH!!! – while making other people pay you to take the risks.
Be the House – NOT the Gambler!
Have a great weekend,
– Phil
