Options Mastery ISSUE 81

October 12th, 2009       

Market Overview

If you want to see a classic example of too much optimism at work, the announcement of President Obama as the Nobel peace prize winner gets all the ticks. To me there is no difference between the current President and the last one...they both have wasted too much money saving Wall St and put the economic future of the world at risk. I think that America currently has troops in about 150 countries at the moment which doesn't seem too peaceful to me. Did you know that the President is supposed to get parliamentary approval before sending troops into battle as they didn't want to have one person with too much control? As long as Obama doesn't start wearing a crown it will be ok.

When the share market is in the process of changing direction it takes a while to get the process in place. There is a huge amount of optimism to overcome because people are buying the dips. Friday's market saw the XJO slightly exceed the 4800 point mark but it could not hold that level. Quite a few of the market pundits were at a loss to explain how the market could turn around when it should have kept going up. The reason is that the 4800 level is a key resistance and should be looked upon as a level to prepare yourself for the next few months of trading.

October is a month where the market moves with a large amount of volatility. It was very volatile back in 1987 when the market dropped 25% in one day. The reason I bring this up is because most people are unaware of the potential for shares to do this. If you are new to trading or have little experience make sure you don't get too exposed in this market and always have a backup plan. The use of stop-loss orders may sound good and in a normal market that is true. However if we have some big moves in the next few weeks, there will be no way that the stop-loss order can be executed at your limit.

If you are looking at the price of Gold and it seems to be going up all the time, it is not because the economic order of the world has ended. The price of Gold is only going up in US$ amounts. It is not going up against any other currency. In fact the performance of the US$ is a key to how the markets will perform over the next few months. Very few traders and investors are bullish towards the US$ and there is a belief that it will continue to fall. This means that we are in an extreme situation and it is relevant to note that whenever there are so few bulls on the US$ it is a time to go against the trend. The problem that most observers fail to see is deflation. It is a pet subject of mine because the majority of people fail to see its effect until it is almost finished. Deflation is dragging down values across the entire asset class and it is still wise to be cashed up and reducing unnecessary debt.

We entered into a Woolworths Bear Call spread on Friday and in typical style we identified the right trade but the market reversed not too long after we started trading. If there is a chance to complete the order on Monday we will do so. Given the high chance of the US$ starting to rally we will also be on the lookout for trades to capitalise on commodity weakness.

This week's trades:

Bear Call Spread: Oilsearch Ltd

Recent Results

Entered         Exited     Trade                                      Contracts / Margin  Nett Profit     ROI        

09/10/2009     Open             WOW Bear Call Spread          10  $3,428                                                

05/10/2009     Open             BHP Bear Call Spread            10  $3,300                                                

01/10/2009     Open             LGL Bear Call Spread             10    $500                                                   

01/10/2009     02/10/2009    XJO Bear Call Spread             10 $3,300        $640.00        19.39%  

21/09/2009     Open             WBC Ratio Put Spread           Short1/Long2   N/A                                                     

15/09/2009     Open             CBA Bear Call Spread            10  $3,150                                                

09/08/2009     28/09/2009    OSH Bear Call Spread            20 $3,300        $440.00        13.33%  

27/08/2009     03/09/2009    WPL Bear Call Spread            10 $3,400        $560.00         16.47%  

20/08/2009     Expired          BHP Bear Call Spread            10 $3,650        $1,180.00 

                                                                                            Rolled Over from /07/2009                           

07/08/2009     Expired          XJO Put Long                           2 $1,285         -$1,285.00    -100%    

03/08/2009     21/08/2009    ANZ Bear Call Spread            10 $3,456         $343.00           9.92%    

18/08/2009     19/08/2009    NCM Bear Call Spread           10 $3,250         $460.00        14.15%  

03/08/2009     10/08/2009    NCM Bear Call Spread           10 $3,200         $560.00        17.50%  

Nett Total: $2,898.00

For Full Results from January 2009 Click Here and enter detais then click on the Results tab:

http://www.universalsolutions.com.au/elite-options/

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