The trend is still up, so here's my strategy

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.

The short-term market trend is up, and the intermediate-term market trend is up.

The (XEO | Quote | Chart | News | PowerRating) (S&P 100) index traded higher on Wednesday up 1.58 points to the 582.25 level.

The XEO has remained in a very narrow trading range for over two weeks moving between the 579 and 589 levels. Yesterday the index moved down to bottom of this trading range, hitting the 579 support level, and then traded higher. The expectation is that the index will remain in its trading range going forward.

From a longer-term perspective, the S&P 100 index has traded in a range between the 543 and 589 levels for over a year, and between the 569 and 589 levels for over 3 months. In total, the index is up only 2% since January 1, 2005.



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. 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 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.

Sincerely,
Charles Sachs
Chief Options Strategist
www.PatientTrader.com