Monday January 12, 2015 – Weekly Market Update

The DOW is down over 100 points today as I
write this. It seems that since the year started,
every day has seen moves over 100 points.

Actually that is not true because on January 2nd,
the DOW only had a 20 point range.

However, every day after that saw swings of at
least 100 points.

Personally, I think this is going to be quite common
this year. Volatility should be high this year.

So, how can you make money in this type of
environment?

I already mentioned last week, that the markets are
overdue for a serious correction. Personally, I
don’t believe these are the times to pile into
the markets.

Think back to 2007 and far the market fell after
topping out.

Could the same thing happen this year?

Sure. Why not? That is what markets do and
how they move.

They go from oversold to overbought. And
vice versa.

So, what can you do to make money?

This year I am trading more volatility. Basically, that
means I am using staddles and strangles more
frequently to try and capture some of these big
swings.

The good part about this strategy is that you do
not need to pick a direction. You only need to
see a decent move. Which as of late, we have
seen quite a few.

One stock I like for this strategy is BIDU. In fact,
last Tuesday you could have bought the $220
straddle for $3. That means you would have long
both the $220 call and $220 put that expired
the end of the week.

Two days later, BIDU ran up to a high of $232.99.
The calls were worth $12 at the peak.

Say you did not sell them at the top, but you sold
them for $10. That means the position netted
$7 per position or $700 for a one lot.

Not bad for two days … and you did not have to
pick a direction.

The other strategy I continue to employ is shorter
term trading. Especially on Friday’s.

I have mentioned before how I have a smaller group
of members who I have dubbed the “Friday Trade
Group.”

The focus of this group is to trade weekly options
on Fridays that expire that very same day.

Yes, there is risk involved, but I know of no other
way to reap signficant returns in such a short period
of time.

This is because time value is the lowest on the Friday
of expiration.

So, it is very possible to pay almost nothing for
an option and see it climb to $3, $4 or even $6.

Can you make money with strategy?

Well, I received an email from one member of the group
who reported that he had his first $1,000 day trading
last Friday.

And here is the thing. He did only 3 trades. One trade
cost him $240 to put on. And on the second trade he had
$245 of risk on it.

On the first trade, he bought a 10 lot of the $102.50
calls on the QQQ and paid 24 cents each for them
or a total of $240.

He sold them about 45 minutes later for $.50 each, netted
him $260 in the process.

This is what I mean about inexpensive options. For
only $24 you control $10,250 worth of QQQ stock.

By my calculation, that is leverage of 427 to one.

The second trade he did was using a strategy I shared
with him.

He bought a 5 lot of the TLT $129.50 calls and paid
$25 each for them.

Around the same time, he also bought a 10 lot of the
$130 calls for only $.12 a piece.

So in total these 15 contracts cost him $245.

The idea is to sell the at the money calls when they hit
the strike price of the out of the money calls, which he did.

He sold the $129.50 calls for $.65 each, netting a profit
of $200.

So, at this point, he has already booked a profit for the
day of $460 and he has risk on the table of only $120.

The worst that can happen at this point, is he walks
away with a profit on the day of $340.

A short time after 1:00 EST, he sold the TLT $130 calls
for $.75. So, he collected another $750.

When you add it all up, he made $1,090 and was done
for the day around 1:00.

Not a bad day’s pay for making a few trades.

Now you can see why I love the leverage options give you
on a Friday.

And if you think investing $485 is too rich for you, then scale
it back.

I have no doubt that this gentlemen will have many more
days where his profit exceeds $1,000. And I thank him
for letting me share his results.

If this type of trading appeals to you, I encourage you to
join the Fusion Trading System. You get access to the
Friday Trade Group as part of your membership.

Go to www.FusionTradingSystem.com

Until next week, trade safely.

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2 Responses to Monday January 12, 2015 – Weekly Market Update

  1. I’ve a solid respect for your writing and advice.

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