As evidenced by the
chart below, financial markets have been trading in a fairly wide
trading range for the past two months between the 569 and 589 levels on the S&P
100 index. Yesterday the index tested the lower end of its trading range and
then traded higher as anticipated.
From a longer-term perspective, the current
movements in the stock market are not surprising. Here are the facts. The S&P
100 index closed at the 575.29 level on December 31, 2004. The index is trading
at the 574.99 level presently, or essentially unchanged for over a year.
While very little has happened in financial
markets for over a year, this does not mean that there were not excellent
opportunities to profit with options. Options have the unique characteristic of being able to earn profits when the
security underlying the options sits still by using the time depreciation
characteristic of the options. This means that by selling options, one can
profit when financial market conditions are static as they have been in the past
year.
Using the time depreciation characteristic of
options, our recommendations have accrued over 126% in profits (excluding
brokerage fees) since July 2004, without a single losing trade recommendation
and are up 14% in the past 2 months. We have achieved these results while
financial markets have been essentially unchanged.
Bottom Line:
It is likely that financial markets will remain
in the trading range set forth in the short-term chart above. This means that
traders can look to execute long positions when the S&P 100 index declines to
the 569 level, and seek to take profits, or enter short positions when the index
rises to the 589 level.
Additionally, options traders should seek to sell
time premium to benefit from stagnant financial markets. Tight stops should be
used to ensure that financial markets don’t break below the 569 level or rise
above the 589 level on a sustained basis.
One other note: We will be giving an online
options
seminar today at 11 a.m. EST. to discuss more fully successful options
trading. Hope you can join us.
Sincerely,
Charles Sachs
Chief Options Strategist
Charles Sachs has utilized
S&P 100 for the past 14 years, both as a trader and an advisor. He uses 24
proprietary indicators in order to structure options strategies which can
generate gains whether the market moves up, down or sideways.
