If you want to go long, watch this level
As evidenced by the chart below, financial markets have been trading in a fairly wide trading range for the past two months between the 569 and 589 levels on the S&P 100 index. Yesterday the index tested the lower end of its trading range and then traded higher as anticipated.
From a longer-term perspective, the current movements in the stock market are not surprising. Here are the facts. The S&P 100 index closed at the 575.29 level on December 31, 2004. The index is trading at the 574.99 level presently, or essentially unchanged for over a year.
While very little has happened in financial markets for over a year, this does not mean that there were not excellent opportunities to profit with options. 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 when financial market conditions are static as they have been in the past year.
Using the time depreciation characteristic of options, our recommendations have accrued over 126% in profits (excluding brokerage fees) since July 2004, without a single losing trade recommendation and are up 14% in the past 2 months. We have achieved these results while financial markets have been essentially unchanged.
Bottom Line:
It is likely that financial markets will remain in the trading range set forth in the short-term chart above. This means that traders can look to execute long positions when the S&P 100 index declines to the 569 level, and seek to take profits, or enter short positions when the index rises to the 589 level.
Additionally, options traders should seek to sell time premium to benefit from stagnant financial markets. Tight stops should be used to ensure that financial markets don’t break below the 569 level or rise above the 589 level on a sustained basis.
One other note: We will be giving an online options seminar today at 11 a.m. EST. to discuss more fully successful options trading. Hope you can join us.
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.