Our weekly advisory newsletter is designed to
give you a full time professional trader’s view
on the markets and where the opportunities are.
This is a very different perspective than that
of an analyst, journalist or news reporter as it
is raw and straight from the coal face, based on
the daily trading activities we are engaged in.
This is a great background tool, in helping your
knowledge grow to the level that you chose.
A full archive of these is available below, reflecting our transparency in sharing
our trade ideas, for the record.
Your Options Weekly:
Your Options Weekly
Options Mastery
Weekly Advisory Service
Issue 70
July 27, 2009
Market Overview
The market keeps making new
highs in this rally,
although the technical
indicators are at the
extreme level. This doesn’t
mean that the market can’t
go higher, far from it, it’s
just that previous extremes
like these usually lead to a
retracement. I still have
the view that we will reach
4200 in the XJO index
shortly. If that is the case
then the market will have
reached a ‘normal’ Fibonacci
retracement level from the
entire sell-off since
November 2007. With the
extraordinary amount of
headlines this past week
telling me that the worst is
behind us, yet another sign
that the rally is ending
just popped into place.
The next few weeks look like
being choppy with a fair
amount of headwind to reach
our target of 4200. During
this time it is imperative
that share portfolios get a
long hard going over and it
may be clean up time for a
lot of your shares.
Other signs of the bear
market re-emerging are the
news that two of the
country’s biggest unions are
proposing a price scheme
that makes Australian made
and produced goods 20% more
expensive than their foreign
counterparts. I don’t know
where to start on a proposal
such as this; however the
concept is simply ludicrous.
The ACTU is also trying to
get a proposal together to
limit pay packages for
company executives. This is
a guaranteed way to make
sure any potential recovery
is dealt a fatal blow just
when it is most needed.
The news on Friday night
that the British economy has
hit a record in shrinking is
not the sort of news that
instils confidence. The US
is due to put out some of
these numbers soon and it
will be interesting to see
if the same contractions are
seen in America. I saw a
confidence indicator in
America had fallen for the
1st time since March, so the
seeds of doubt are just
starting to appear next to
the ‘green shoots’ of hope.
Last week we had a couple of
‘smash and grab’ trades with
Newcrest and Woolworths.
They were both Bear Call
Spreads and we sold them on
Monday and Tuesday
respectively and proceeded
to buy them back on
Wednesday and Thursday for a
good profit. The WOW trade
was particularly pleasing in
that the trade set-up was
ideal and identified similar
behaviour surrounding the
last results announcement.
This week
Bear Call Spread: Oilsearch (OSH) Bull Put Spread: Woolworths (WOW) Not today
Bear Call Spread
The
simultaneous writing of one
call option with a lower
strike price and the
purchase
of another call option with
a higher strike price
OSH: $5.66 Sell: Aug $6.00 Calls 11.5c Buy: Aug $6.25 Calls 6c Margin Estimate: $2847
OSH Payoff Diagram
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Education Pty Ltd
trading as Options Mastery
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Trading involves risk of
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indication of future
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education content is of the
nature of general
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objectives, financial
situation or needs of any
particular person. The
decision to invest or trade
and the method selected is a
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Explanation of this
Series
The trades shown are based
on the indicative prices
used for the Newsletter. The
objective of the newsletter
is to generate trade ideas
and show how theory and
practice come together by
developing trades using the
strategies contained in the
Options Mastery program.
Specifically it is for
education purposes only. The
newsletter is written on
Saturday morning (because
the market is closed) and is
based on Friday’s closing
prices, so there may be some
variation in option prices.
As a result, if trading
these strategies on Monday,
you will most likely receive
different premiums and trade
at different price levels.
The required account size
for each trade is outlined
in the monthly summary.
Specifically, the objective
of Your Cashflow Weekly is
to provide general advice on
which strategies you may
consider applying in today’s
market.
Assumptions & Process
For covered calls, the
assumptions made are that
the position is assigned, if
in the money and returns are
based on this, or if the
position is out of the
money, we assume the
position is closed out i.e.
stock sold and premium
retained – the net figure of
which is reflected in the
outcome page. In realty,
most traders would keep the
stock and resell calls for
the next month, or stop out
of the stock. This provides
a consistent measure and
outcome, for educational
purposes.
For spreads, we assume that
the position is held to
expiry – resulting in the
entire credit being the
potential profit or, if the
trade finishes in the money
that the spread is closed
out at the maximum potential
loss. While this does not
reflect the most likely
strategy applied by traders,
it provides a controlled,
measured and consistent
basis for this service. In
realty positions would
likely be closed out earlier
than expiry as a lower risk
approach to the strategy. As
this service is for
educational purposes, you
may follow the suggestions
or consider an alternative
exit strategy.
Therefore any implied
results contained should not
be relied upon for making an
investment decision and
specifically we advise that
past performance is no
guarantee of future return.
Trading involves risk and
the potential to incur
losses as well as the
potential for profit and we
strongly recommend that you
speak with your licensed
advisor before making and
financial decisions.
Brokerage on the examples
illustrated is taken as 1%
or $85 Min for all
transactions and 0.5% for
assignment, this amount must
be debited from the attached
figures to give a nett
figure for the outcome. All
options trades are reflected
at $85 per leg for
brokerage. A GST of 10% is
added to brokerage rates,
plus standard Option
Clearing House fees of $1.02
per contract.
The summary of these
potential trade ideas shows
the figures quoted in the
attached reports and then
also shows the transactional
fees that would be
associated with taking these
trades.
Australian Investment Education (t/a Elite Traders Group) is an
authorised representative (#338875) of The International Securities
& Derivatives Group Pty Ltd (ABN 22 103 552 683) AFSL #227544. The
provision of financial product advice to clients of Australian
Investment Education may be made by licensees other than The
International Securities & Derivatives Group Pty Ltd. Please refer
to the PDS provided by your broker prior to acting on any financial
product advice received. Any trading advice contained in this
communication is of a general nature only, and your personal
financial circumstances have not been considered in its preparation.
Please be aware that trading in financial markets will result in
both profit and loss.
