Again, I have to reiterate that rallies in the equity markets may now be able to be sold. The problem is, so far, some equities and indices aren't rallying that much.
Look at the SPY and more importantly, look at the past 3 trading days. Volatility has decreased and our average trading ranges have definitely decreased:
Past performance is not indicative of future resultse is an individual stock (MMM) that has hasn't retraced much either:
Past performance is not indicative of future results
Finally, here is USO, which is outperforming on the upside as we get equities to stabilize:
Past performance is not indicative of future results
So two schools of thought:
1. If you are bearish, then any rally can be sold and if you are really bearish, a 23.6 or 38.2 retracement may be very large. This may also be the "bearish protection" trade for the investor with a lot at stake in the equity markets.
2. If you are bearish, and are more patient, you may get an upmove and as the equities move higher, puts get cheaper and cheaper, giving you a "better deal". Better deal meaning cheaper options, but no guarantees that the markets go in our intended cirection. The key here is also "may" go higher. The markets have a lot to digest on a daily basis and it wouldn't take much for the current prices to be the highs for days or weeks as lots of market drivers could push us lower (a lot lower and very quickly).
People who write covered calls have option 1 and 2. They can wait for a rally and with patience, see higher call premiums to sell into. Or they can just take what is currently given and not be a market timer, but an income producer. This way, they don't miss out if the markets don't rally and they get their .05 to .01 percent no matter what. If the markets rally, they are happy either way.
It all comes down to you as an individual and how greedy or conservative you are. Remember, overall, the person who does nothing but hope that things work out is the most risky of all as they are leaving it to chance, fate and the past as "the markets always rally".
Moving into forex, we had GBP/USD break out to the upside. Here is a daily chart:
Past performance is not indicative of future results
For the second day in a row, we had a strong GBP/USD and a weaker EUR/USD. In the USD/CAD, we saw a DOUBLE FALL LINE TRADE as equities came off their highs (sharply) causing the USD to strengthen:
Past performance is not indicative of future results
See you this evening for the Interbank FX webinar on trends (long and short term) and an update on recent volatility!
Happy Trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
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