Monthly Trader Alert | April 22, 2010

The market consolidated again today which, in almost every case (sideways action), means that the market will continue higher.

It’s making it’s way to the 61.8% retracement level on both the DOW (11,247)
and the S&P 500 (1227).

We are waiting now for the best shorting opportunity since October 2007 when
it hits these levels.

A subscriber asked me what will possibly cause the market to go down
at this point.

The answer is never revealed until it happens but I’m guessing that it could be
any one of dozens of reasons:

1. The Health Care Bill backlash that’s building
2. The Tea Party momentum
3. The Greece debacle that’s starting to boil (Greek credit default swaps are hit a historic high this morning)
4. Excessive government debt and lack of bond buyers
5. Goldman Sachs fraud – it’s just the tip of the iceberg
6. And much more…

Trade With Confidence
Daily Market Advantage

Trading Iron Condor Options

Iron condor options are meant to find the best between reward and volatility. When in a fixed range you profit the most, however those that are most boring with low betas are more than likely to remain fixed and also will be the lowest in volatility and in turn produce the least reward. The spread is divided into 4 legs, 2 money puts and 2 money calls, all which will expire at the same time. The strike prices of calls are also the exact same as with the difference between the puts. As you may have understood you will be selling both a call and put spread.
When selling a call it means that you both buy and sell a call that has a lower strike price. Due to the low strike price the premium received from the sale will be much higher than the amount spent on buying the call. This basically will mean that you will start with a surplus of cash. By the underlying security remaining lower than both they will be worthless by the time they expire which will leave you with the original cash profit. If however it may go higher than the strike price you will be at a loss when the price falls between the 2 strike prices. Be this as it may, the loss that was taken will be the difference between them due to the market price going above the highest strike price, and this call will grow in value while the call sold will not.
When you are selling a put spread this will mean that you both buy and sell a put option as a much higher strike price. This will cause you to have a surplus of cash after the profit made from selling the put at a higher strike price that what was paid for the lower strike price put. By the underlying security remaining above the both of the strikes then they will be worthless after expiring and you will be left with the initial cash being your profit. If however it may go higher than the strike price you will be at a loss when the price falls between the 2 strike prices. Be this as it may, the loss that was taken will be the difference between them due to the market price going above the highest strike price, and this put will grow in value while the put sold will not.
Both the put and call are hedges which will prevent any large amount of loss your position in case the security goes down or up. Now it is important that you don’t get greedy as some have and you don’t spend that money. With this type of spread you are selling both a put and call spread which are out of money. This way maximum profit is made from the security which would not go up to that lower strike price of the calls nor would is fall to the high striker price of the put.


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    Monthly Trader Alert-March

    After a brief pullback at the beginning of last month, we’ve seen
    the rally continue in the market.

    Of course this much to the disappointment of people like me who
    understand that the market is being manipulated, and is nowhere
    even close to a reflection of reality.

    Make no mistake about it. History has proven that the market will
    correct itself. It’s not a matter of if, but when.

    Nevertheless, we cannot allow our sentiment to dictate our trading.

    We are also bearish long-term.

    Yes we’re going to make a killing when the market goes down, but we
    want to keep growing our portfolios in the mean time.

    So we have to stick to the plan and manage our portfolios by the
    numbers.

    For today’s tip, we want to give you a bonus video.

    It is a 32-minute video which was created as the “weekend review”
    for the February 21st edition of the Daily Market Advantage.

    This video covers the current market conditions,
    but also provided some good insight into the mentality of retail
    investors, and how it is playing into the market.

    You can grab it here:

    http://www.diversifiedoptionstrading.com/daily_DMA/sample0221.zip

    (The zip file is 62MB)

    Members of the Daily Market Advantage receive this kind of insight
    EVERY trading day.

    If you’re not yet a member you can get more info at:

    www.diversifiedoptionstrading.com/go/DMA

    In addition to the daily reviews, there will also be “mid-day updates”
    from time to time, with valuable up-to-the-minute tips.

    For example, today an update was posted at 11:39AM EST, at the exact
    moment the market reached a high point (10,469… currently the
    high of the day).

    It said a short-term move lower was most likely about to start.

    I am writing this an hour and a half later, and already it’s proven
    to be a great day trade.

    It also cautioned to be alert. As mentioned in last
    night’s review, there’s a good chance we could go up to the 10,500
    level on the Dow, and we won’t be sure of a further decline unless
    we see a serious sell-off down to the 10,187 level.

    Maybe you’re wondering how Dave in the video knew that the market was reaching a
    temporary top at 10,469?

    He knew it from his technical analysis (including the FIB
    retracement, which is explained in the daily videos), as well as a
    strong signal from his proprietary MarketDNA indicator.

    If you do not own the MarketDNA indicator, you can check it out at:

    www.diversifiedoptionstrading.com/go/MarketDNA

    Best of trades.

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