Here’s how you can profit with options in static markets
The short-term market trend is up, and the intermediate-term market trend is up.
The S&P 100
(
XEO |
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PowerRating) index closed .34 of a point lower on Thursday at the 580.85 level.
While stocks have risen in price over the past few days, very little has happened over the past 3-weeks in financial markets, as viewed in the chart 1.
In fact, in looking at chart 2, we see that the S&P 100 index has traded in a very narrow range for most of the year, with a total yearly range of about 8%.
In total movements, the S&P 100 index is essentially unchanged for the entire year. The index closed at the 575.29 level on December 31, 2004 and closed yesterday at the 580.85 level, or a net gain of about 1% for the year.
While very little has happened in financial markets this year, this does not mean that there are not excellent opportunities to profit with options. Unlike common perception, successful options trading isn’t an adrenaline rush. It requires a lot of patience. A good options trader first awaits for the right trading opportunity to arise, and then holds the options while they accrue profits through the passage of time.
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 handsomely while financial market conditions are static, as they have been this year.
Bottom Line:
Volatility in financial markets is quite low presently, and has been for a sustained period of time. Trends in volatility tend to persist, so it is most probable that financial markets will trade narrowly going forward. Accordingly, traders should seek to initiate options positions that sell time premium, and profit from the passage of time.
Sincerely, Charles Sachs Chief Options Strategist
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.