If You Believe This

The text in this blog is taken from the daily alerts I send to subscribers of my OEX Options trading instruction service at OEX Options


Consumer inflation cooled last month, which made the Fed's case that inflation is easing. If you believe this you're a Republican and know that the war in Iraq is necessary to restore real world order:)

But it was this, coupled with Icahn stepping in to raid Yahoo, and deal making, lowering oil that allowed investors to look past mostly weak economic reports and yet again raise the market to Dow tops of 13,040. We continue to believe that bulls may take this market to 13,100 area on the theoretical Dow, especially noting that May option expiry the market has been up 7 and down 7 since 1993. It coincides with the very slight whipsaw "counts" we've seen all week.

The June630C was available as low as 16.00 in morning downside, and sold to tops of 20.70 by late afternoon, for profit potentials of 29% in single day trading.

A few comments and lessons from subscribers:

"Hi,

I received my alert this morning without trade recommendations. I received commentary from Floyd but no alerts.

I read my manual last night and was overwhelmed. I can follow the trade recommendations with the work sheets but everything else is Greek.How much of this I am going to have to do on my own? I am a newbie and willing to learn but this stuff looks complicated.

Give me some insights please."

Floyd-I'd like subscribers to help me answer this. What would you say to this subscriber?


"Do you mind sharing with me what metric(s) you use to determine your tops and bottoms for the Dow? Also, if you could have any of your student/trader’s study and really focus on 2-3 areas of learning, what would they be? (above and beyond point and figure charting)."
Floyd-this is a widely asked question.
1. I use point and figure charts with 50 and 200 day moving averages and Bollinger Bands.
2. I track on point and figure daily charts and watch support and resistance lines that "stand out". Much of this is intuitive, and NOT mechanical.
3. In a 21 day average period this past year the market moves in 586 point ranges. Level 3 subscribers have an excellent article on "Watching Drops in the Marketplace" on the website. I believe that at market tops (which I project) the market will typically move around support lines proportionately 586 points over an up to 21 day period. News will act as the catalyst and trigger, around economic data.

And from another subscriber, with Floyd comments in bold:

"
Hi Floyd,


Am new to the service.

Make sure you really read our manual.
Please clarify your sell strategy. e.g. May 640 c alert (issued May 13) was sell to 24.90 and first buys only made.

Yes, and this hit up to 30%profit goals, and was profitable for two days. The sell prices we list are the TOP prices we think the option will go to.


It did not hit 24.90 with a high of 19.90 yesterday and there were no second buys. However your May 15 premarket commentary says it should have been sold on the 14th !

We often take an option off the alert if it's been profitable. We list the stop loss initially for the morning of the 4th day, with the first day beginning the day after the buy
This would change if a second buy were made, with the # of days stop loss then beginning the morning after the second buy. When making a second buy you would average your costs (the second buy typically TWICE the number of contracts as the first) and setting sales goals of up to 30% on the averaged costs

Are we supposed to wait until we hit these recommended sell rates or sell when the DOW hits the upper limit mentioned in your commentary (upper limit minus 30 points so 13000-30 = 12970 which it hit yesterday) and just book whatever profit (depending on the purchase price). The Dow projections tell you the top or bottom areas we see the market going to.

Holding for the top levels, or bottom, is higher risk, and we recommend always selling a profitable option in 1/3's, holding the final 1/3 for the top range (near, not at), if looking for top profits. The risk increases as you hold the final partials.


Or do we just hold for the 5 days with a sell price of 24.90 and if it does not hit the target sell on the morning of the 5th day.

Be sure and really study our 130 page manual. Understand your own risk/reward ratios, and define what your profit goals are.