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Selling Stock Options

July 31, 2006

The Smart Profits Report: Issue #337
Monday, July 31, 2006

Selling Stock Options: Know This Key Selling Method To Profit With Options
By Lee Lowell
Advisory Panelist, Mt. Vernon Research

Any conversation about taking profits, is sure to prick up everyone’s ears. But did you know that there’s a difference in profit-taking methods when holding options positions? It’s a difference that can mean big dollars in your pocket.

It arises when you hold a “short” option position versus a long option position. When I say a “short” position, I don’t necessarily mean you’re bearish - I’m actually referring to selling stock options, as opposed to buying them.

Here’s how it works…

How to Boost Your Profit Probability Through Selling Stock Options, Not Buying

If you’ve ever sold stock options - whether it’s part of a spread trade, or a much riskier “naked” position - you’ll know that the most you stand to gain is the amount of premium you take in from the buyer. That’s it. You can’t make any more than that. On the other hand, when you buy a stock option, your reward can be unlimited.

But here’s the kicker: In my options trading experience (including six years in the NYMEX pit in New York), when done correctly, selling stock options has a much higher probability of gain. Here’s the key differences:

  • Selling Stock Options: When you sell an option, someone pays you the cash for it first. The object of the game then is to hold onto that money and have the options expire worthless, so you don’t have to give back any of the money you collected upfront. In short, when you sell a stock option, specifically an out-of-the-money (OTM) option, you really don’t need the direction of the stock or commodity to come into play as much as you would when buying options.
  • Buying Stock Options: But when you buy an option, you need two things to happen for you to make money. First, you need it to move in the direction you want in the time allotted. Second, you also need it to move a good distance. And sometimes, the chances of that happening are pretty slim.

So when you’re the seller of those OTM stock options, you just need to sit back and wait for the options to expire worthless. The difference is that even though selling a call option or selling a put option has a somewhat directional bias, its profitability doesn’t solely rely on getting the direction right. With a short stock option position, you can still emerge a winner, even if the underlying security moves up, down or sideways. As long as the security doesn’t go blasting past your short option strike price, you’ll win if it expires worthless. Once the option expires, you get to keep the money you collected upfront, free and clear.

The Buyers Battle… The Clock Ticks… And Your Profit Chances Increase

You could say that short stock option sellers are the ultimate “hands-off” traders. They’re simply wishing time away. This is because the sooner expiration comes, the sooner they get to keep the option premium. If you’ve done all your analysis and feel comfortable about the OTM options you’ve sold, then you just need to sit back and watch the option decay until expiration.

Meanwhile, the option buyers are fighting an uphill battle, not only against the stock or commodity’s direction, but against time as well. They need to micromanage the trade, constantly watching to see if the security is moving in the right direction. At the same time, each day that passes means time decay is eating away at the options and they’re losing value.

For a seller, this is a great scenario. Every day an option loses value, the closer it is to zero, and the closer the option seller is to having a winning trade.

Another Handy Benefit To Selling Stock Options

When you’re selling stock options, if your position expires worthless, you don’t need to shell out an extra commission fee to close the trade. Once an option expires, it’s done. You don’t need to be closed out.

This is killer for many options buyers. Some simply let their long options die a slow death until they eventually expire worthless. Sure, they didn’t have to spend the extra commission costs to close it out - but they still lost 100% of their option investment.

But sellers have the luxury of not spending any money to close out the trade - and keeping 100% of their profits.

Most options buyers also tend to take action on their long positions at some point during their lifespan. This entails splashing out extra commissions. But as a seller, you can save yourself a significant amount over the course of a year simply by letting your short stock options expire.

So does that mean you just sit just sit around, waiting for expiration? Nope…

Get Up and Cash Out: Two Reasons to Play the Short Side for Hassle-Free Gains

Not all short stock options positions will expire worthless. In my own experience, I’ve encountered many occasions where I’ve closed out profitable short options trades before they’ve expired. One rule that I like to follow is that if my short stock option position has returned about 70%-80% of its potential profit, I will close the trade ahead of time. This allows me to bank a profit before the market has a chance to reverse on me and dent those gains.

So if the time-decay bug has bitten you in your options trading experience, selling stock options is one way to fight back. With time decay working every day until expiration, it doesn’t take too long before you could be sitting on some tidy gains from your short position.

In addition, if you’re the kind of investor who doesn’t have the time to sit at a computer and watch the market all day, this strategy can work very well for you. While options buyers need to keep an eye on their positions more closely and frequently decide what to do next, it can be a stressful and emotional experience. And when emotions muddy the water, that’s when judgment gets clouded and decisions become harder.

Your position is simple, though. As an options seller, you can relax a little more, safe in the knowledge that time decay is taking care of your profits for you. That makes the profit-making decisions much easier.

Good Trading,

Lee Lowell

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Today’s Smart Profits Cribsheet

  • It’s a lucrative strategy… but one that’s surprisingly underused by many investors. Don’t be one of them. Find out how you can harness the power of selling options and pad your portfolio in this comprehensive Smart Profits #270, Selling Covered Calls: Getting Cash for Stocks You Already Own.
  • Do you know when to hold ‘em and when to fold ‘em? Get some helpful tips in Smart Profits #295, Option Profit-Taking: Making It Easy To Take the Money and Run.

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Natural Gas Prices

July 27, 2006

The Smart Profits Report: Issue #336
Thursday, July 27, 2006

Natural Gas Prices: The Natural Gas Market is Set to LEAP in the Months Ahead
By Karim Rahemtulla
Chairman, Mt. Vernon Research

With this summer bringing unbearable heat to most parts of the U.S., I’m thankful to be writing this in the fresh, cool air of western Canada. I’m currently in Vancouver, where I’m speaking at the Agora Wealth Symposium, before jetting off to speak in Calgary and then in Toronto.

But the intense summer heat has got me thinking about other extreme events at this time of year. Besides the heat, with August around the corner, we’re now approaching the most intense period for strong, damaging hurricanes. In turn, that raises the specter of an equally strong rally in the natural gas market.

While both these events are enough to make many investors feel queasy and worry about the damage they’ll inflict on their portfolios, my LEAPS Trader and Income Trader members are well-positioned to take advantage of any upheaval. In fact, we’ve actually placed our bets on this occurrence and stand to churn out quite a hefty turn if natural gas prices move higher in the months ahead.

The futures markets certainly seem to think this is a likely scenario. With the threat of disruption from hurricanes looming and winter also just a few months away, prices currently show that gas prices could soar this winter.

Take Advantage of The Natural Gas Market Today

In recent history, natural gas has traded at a ratio of about 6 to 1 versus crude oil. This means that if crude were trading at $20, natural gas would be around $3.50.

But today, that ratio has declined to about 13 to 1. This means one of two things: Either crude oil is overvalued, or natural gas is undervalued.

Only history will judge which is true. But for now, all we know is that crude oil prices appear to have established immense support in the $60-$70 per barrel range. The market has tried all year to break back down below $60 - but it’s not happening.

And it’s easy to see why:

  • The most recent Middle East crisis
  • Continued strong growth in China
  • Massive geopolitical uncertainty across the globe is not showing any signs of easing.

Compound the situation by possible natural disasters that could temporarily crimp supply… and you can understand why there is so much risk premium in crude oil.

So if you’re looking for a “cheap” commodity play, then natural gas is the one with the most potential in the months ahead. Right now, it’s trading at about $6 per thousand cubic feet (Mcf). But the futures market shows that prices will spike to $10 by the winter months…if there are any disruptive events this summer.

The question is: Which investment vehicle do you use to play the market?

Play LEAPS on Two Companies with Plenty of Upside Potential

In this case, my favorite way to play the natural gas market is by using LEAPS options. These options allow you to control shares of a company for a year or more. And, as the current price, compared to what the futures market shows, natural gas investments are currently on sale.

I have a couple of stocks for you to consider…

Chesapeake Energy (NYSE: CHK) and Encana (NYSE: ECA) are two of the best run, low cost operations in the world. Both companies are trading down from their 52-week highs, with Chesapeake in particular having two key positive factors in its favor:

  • Chesapeake Energy has hedged more than 80% of its natural gas production at prices above $9 per Mcf - a very astute move on its part.
  • In addition, the company has enjoyed some of the highest levels of insider buying of any stock on the market over the past several months, with Chairman Aubrey McClendon and President Tom Ward gobbling up tens of millions of shares between them.

Company insiders simply don’t invest millions of their own fortunes into a stock unless they think it’s poised for some significant upside. Since they know more about their company than anyone else, strong insider buying is one of the best indications that a stock is robust.

Don’t Miss the Boat on Commodities-Based Gains

If your portfolio is light on commodities, or you feel you might have missed the boat on commodity-based gains, fear not. You still have the opportunity to speculate on one of the most volatile commodities on the market.

The kicker? You can do so while it’s relatively “cheap” on a historical basis. And best of all, you can do it with very low risk by using LEAPS options.

Good Trading,

Karim Rahemtulla

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Today’s Smart Profits Cribsheet

  • Ignore the powerful profit potential of commodities at your peril. This is one market that should enjoy plenty of upside for the foreseeable future. Find out how you can take advantage by creating your own commodities-based “Mini Hedge Fund” in Smart Profits #114, Commodities: How to Create Your Own ‘Mini Hedge Fund.’
  • Discover the many benefits that LEAPS options can give you, including increased leverage and lower risk. Take a look at Smart Profits #121, LEAPS Vs. Stocks: How to “Own” Almost Any Stock for Pennies on the Dollar

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The Stock Market’s Reaction to Good News

July 25, 2006

The Smart Profits Report: Traders’ Tuesday: Issue #335
Tuesday, July 25, 2006

The Stock Market’s Reaction to Good News: Why It’s Best to Sell at the Sound of the Trumpets
By D.R. Barton, Jr.
Advisory Panelist, Mt. Vernon Research

Some pundits and investors are salivating… They believe that good news on one or both of a couple key looming events will be enough to send the market soaring skyward.

But watch out. History tells a different story.

Indeed, history has proven over and over again that the stock market’s reaction to good news is highly temperamental, and it often reacts negatively. But why? What causes such unpredictable behavior? We’ll look at why this happens and what we can expect in the coming days and weeks.

First, let’s take a look at the two factors that have some folks fooled…

Don’t Fall for These Two “Good News” Myths

First, you’ve got the hostilities between Israel and Hezbollah. Many are worried that the fighting could escalate and spill over into other countries in the Middle East. But others hope for a cease-fire and further hope that an end to the hostilities could be the catalyst the market needs to send it skyward. Don’t count on it.

As Lord Rothschild said (paraphrased): “Buy on the sound of the war-cannons; sell on the sound of the victory trumpets.” You would do well to heed this legendary speculator’s contrarian advice.

The second piece of potential good news on everyone’s radar screen is that the Federal Reserve has recently dropped not-so-subtle hints that that it will finally take a rest from its incessant rate hikes. Everyone expects that when the Fed stops tightening, the market will spread its wings and fly. Once again, don’t be surprised when the good news myth gets busted.

But some investors do get fooled every time. The anticipation of market-moving news gets them excited, but is soon punctured shortly thereafter with lots of disappointment. This pattern repeats itself over and over.

Here’s why you should pay attention to Lord Rothschild’s savvy piece of contrarian advice when he suggested that the best play is to not get overly optimistic about good news at the end of a conflict…

Sell on the Sound of the Victory Trumpets

It’s useful to understand the market this way: It acts as a round-the-clock valuation mechanism. It constantly asks the question, “What is the value of Event X in the future?” And it immediately answers that question in the form of a price.

The event in question may be a company’s earning report. The market would ask:

  • What is the likelihood that the company will exceed its earnings projections?
  • What is the likelihood that it will underperform?
  • What would either of those events mean in terms of the stock price?

As you see so often, with every little hint of better performance, stock prices jump. And with any suggestion of a letdown, prices drop. All of this happens on rumors and inference.

The end result? By the time earnings are actually announced, the stock market has already digested almost all the possible information about the earnings announcement and valued the stock accordingly. So the only way the stock’s price will move significantly is if there is a surprise.

Then there is the “myth of good news” - another factor that often shocks people. For example, the stock’s earnings report is released, showing that the company met expectations, earning five cents a share. The public thinks this is good news and expects the stock to rise. But in a pattern we see over and over again, the stock may move up for a short while, only to start dropping, despite the good news. Why?

Because the news was already calculated into the price by the markets valuation mechanism.

The good earnings were expected. The price had already been adjusted to take those earnings into account. And when the company announced that expectations were met, there was no new good news. So any chance for even better news is lost and the price trickles lower.

The Key to Understanding The Stock Market’s Reaction to Good News

So next time good news hits the stock market and the share price still goes down (usually after a very short spike up), you’ll know why.

Here’s the key: If the stock market has already anticipated good news, the actual news will have little effect on prices, or will even have a negative effect. To clarify this, let’s look at a couple of examples:

  • End of War: The classic example comes following the cease-fire in the Vietnam conflict. After prices spiked briefly, they headed down. While the ceasefire was good news, it was expected. Lord Rothschild’s advice was spot-on again…
  • End of Federal Reserve Tightening: Jason Goepfert, the excellent sentiment analyst, has conducted some compelling historical research on what happens after the Fed stops raising interest rates. In the six months after the end of a tightening cycle, there is strong support that shows stock prices dropping. So be aware that one of this year’s most anticipated events (the end of the Fed’s interest rate hikes) may bring more disappointment than expected.

Here’s what you need to remember: While you might expect that the stock market’s reaction to good news would be to soar skyward, if that news was expected, the euphoria is usually short lived and brings only a temporary spike to the market and prices. So don’t get caught up in the emotions of the moment when the good news - which everyone was expecting - finally comes.

Good Trading,

D.R. Barton Jr.

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Today’s Smart Profits Cribsheet

  • With so many forces at work these days, it’s hardly surprising that the market is experiencing one of its most volatile periods. But you don’t have to sit back, watching and wondering. Learn how you can use volatility to your own advantage in Smart Profits #321, Fast and Furious Volatility is Back in a Big Way: How To Profit Using Leg Spreads & The VIX. 062206
  • As always, don’t forget to visit the Smart Profits Glossary for definitions of options & market terminology.

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The Chart of the Week

This chart of Ruby Tuesday (Nasdaq: RI) shows how it was a victim of the good news myth.

Ruby Tuesday as a Victim of the Good News Myth

On the evening of July 11, RI announced good earnings. The next morning it opened up strongly, traded up briefly and then sold off the rest of the day. Since then, it has dropped more than 12%.

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The Dow Jones

July 24, 2006

The Smart Profits Report: Issue #334
Monday, July 24, 2006

The Dow Jones: Technical Charting Shows Trouble On the Horizon
By Jim Stanton
Advisory Panelist, Mt. Vernon Research

In the aftermath of a crushing bear market, it’s nearly always the small caps that emerge from the wreckage in the best shape. On the other hand, the so-called “big boys,” like the Dow Jones, have not fared so well.

The story is no different this time around. Since the end of the 2000-2002 bear market, which ended in October 2002, the smaller-cap indexes such as the Russell 2000, S&P 600 and S&P 400 (mid-cap) have performed best and rallied past the peak of the dotcom craze of March 2000. Along with the Dow Transportation and Utility indexes, all have gone on to record new highs. The Dow Jones, S&P 500 and Nasdaq Composite indexes have yet to achieve those heady heights.

Yes, all three have traded in a long-term uptrend since the bear market lows. But the Nasdaq has only been able to recoup 30% of its losses, while the S&P 500 has clawed back 70%. The first 10 days or so of May seemed to be the key period, with the Dow Jones inching within 80 points of its all-time high, but then stumbling off the cliff. The old adage, “Sell in May, then go away” is certainly on the money this year.

With many investors exasperated, the big question now is: “When will the selling end?” Fortunately, the technical charts provide some clues…

Selling to Continue, Despite Fed Hype

Since mid-May, the indexes have engaged in a furious battle between bulls and bears. Except for a mini counter-trend rally at the end of May, they spent most of their time spiraling downwards until June 14. At that point, the signals pointed to a market that was extremely oversold and the bulls inched back into the water. But they’d only recouped about half their losses before they got scared again and the bears took over.

Since then, all the indexes, except for the S&P 500, have traded below their June lows, with the Nasdaq looking particularly poor.

As the Dow Industrials hit their 2006 low last week, Federal Reserve Chairman Ben Bernanke donned his rose-tinted glasses and basically told the market not to worry about current economic conditions, higher inflation and a slowing real estate market. He instead reminded Americans to focus on the future - one in which the “resilient economy” would chalk up annual GDP growth of 3%, with inflation tame.

In response, the markets promptly enjoyed one of their best days of the year, with the S&P 500 rallying more than 22 points on heavy volume and great market breadth. For a while, many traders giddily believed this had stopped the bleeding.

Not me. We only saw the hedge funds engaging in a mass short covering rally - one that ran out of steam by the end of the day. The markets then sold off again over the next two days, with all three small-cap indexes (mentioned earlier) making new correction lows, along with the Dow Transports. The Nasdaq indexes came within a few points of doing the same.

This action tells us that the institutions are using these counter-trend rallies as selling opportunities. This is not bullish and the correction has further to go. But how much further?

Looking to the Dow Jones for Long-Term Answers

Given that the Dow Jones has performed the best of the three major indexes since October 2000, let’s take a technical approach to it to hunt for clues as to where the markets might be headed over the intermediate term.

“Dow Theory” is the basis for modern technical analysis and a concept actually credited to William Hamilton, the understudy of Dow Jones Industrial Average founder Charles Dow. In order for a bull market to continue, according to the theory, the Industrials and Transports have to move in unison and make higher highs together. Usually, this needs to occur within a week or so, and if it doesn’t, the markets are set up for a downturn.

The same is true in a bear market. If one makes new lows and the other one does not, it sets up a potential buy signal.

On May 12, the Dow Transports traded over 5,000 and made an all-time high. But the DJIA fell 80 points short of its all-time high. This is known as “Dow Theory divergence” - and true to the theory, you know what’s occurred since then.

The Dow Industrials made new correction lows on July 18 and the Dow Transports followed suit, making new correction lows on July 21.

According to Dow Theory, since they are moving in unison, they will remain under a sell signal until we see a Dow Theory divergence. And my proprietary trading model also signals lower prices over the intermediate-term, so we’ll take a look at a daily chart of the Dow Industrials to see how far down it could go.

Daily Chart of the Dow Jones: How Low Can It Go?
Chart Courtesy of Trade Navigator Software

Two Dow Scenarios That Call for a “Put Plan”

As you can see, the Dow Jones made a slightly lower low in July, but has rebounded since then. This opens up two potential scenarios:

  • The Dow could remain in the 10,700-11,260 trading range - and possibly approach the upper end of that range in order to work off the oversold conditions before coming back down.
  • The selloff continues, with the Dow sinking down to the 10,490 level. According to my trading model, this is its minimum downside target.

Bottom line: Since the Dow Transports and the small-cap indexes all made new correction lows after Ben Bernanke’s comments last Wednesday, the odds favor a continuation of the selloff from current levels.

If this doesn’t happen and the DJIA attempts to rally back up near the top of its trading range, I will be adding to my portfolio of put positions - and you should, too.

Good Trading,

Jim Stanton

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Today’s Smart Profits Cribsheet

  • There’s no doubt about it: This is one of the most volatile periods for the stock markets in recent memory. Don’t let your portfolio get crushed with everyone else’s. Protect yourself today, using our simple guidelines. For details, check out Smart Profits #326: Stock Market Volatility: Three Ways to Combat Volatility’s “Radical Shift”
  • Investor sentiment and market behavior is notoriously unpredictable - especially when the markets face the many turbulent external factors you see today. But there’s no reason why you should be caught out. Follow the Smart Profits #311, Investor Sentiment & Market Behavior: A 7-Step Plan for Developing a Profitable Downside Bias and find out how you can make money, even when others are losing theirs.

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Options Strategies

July 21, 2006

The Smart Profits Report: Issue #333
Friday, July 21, 2006

Options Strategies: The Perfect Options Strategies For A Seesaw Market
By Steve McDonald
Advisory Panelist, Mt. Vernon Research

So much for the traditional “summer doldrums.” In all of my 22 years of stock market experience, I’ve rarely seen a wilder, more volatile time than the past 10 weeks. With major swings in and around all of the major index support levels, it’s enough to make even the coolest investors flinch.

You can pin the volatility squarely on a quartet of concerns:

  • Several ongoing wars
  • A rash of second-quarter earnings reports
  • A deadlocked Congress
  • Bloated debt levels

But fortunately, it’s not all doom and gloom… While many people worry and panic about their crimson-colored portfolios, smart investors know that there are always opportunities to make money - whether the market’s up, down or flat.

And one of the best ways to deal with the market fluctuations is to use options to insure your portfolio. This is exactly why options were created. And if you use the right options strategies, not only can you protect yourself against risk, you can also churn out some healthy gains…

An Options Strategy for Downside Portfolio Insurance

Let’s assume you own a solid portfolio of stocks, well diversified, and you have no intentions of selling off the first time the market hiccups. In other words, this is your investment portfolio, not a trading portfolio. When the market starts swinging 200 points in both directions, even the most seasoned investor gets sweaty palms.

Insuring your stocks means buying options on the down side. Here’s an example…

Apple Computer (Nasdaq: AAPL) is currently at $60.71. Its high for the year is $86, its low is $42. Let’s say you own it at $60. With the market so unpredictable, where the stock will be tomorrow is anyone’s guess. So, you buy the following option:

The August 2006 $55 put, trading for $2.35.

Then, Iraq announces it’s suspending oil shipments, or Syria decides to openly support Hezbollah, or North Korea announces it’s launching more missiles - just to name a few possibilities. The market then has another week where we shed several hundred points, the more actively traded stocks lose 10% or 20%, and your portfolio drops.

The put you bought should increase in value and increase exponentially as you approach your strike price of $55. In other words, it should have a higher percentage increase than AAPL’s drop.

Options Strategies That Help Keep You In The Market

You may not recover your losses dollar for dollar, but you get an unseen benefit that is much more important: The trade will help keep you in the market.

Letting the market’s wild swings be the guiding force for your buy and sell decisions is the shortest route to the poor house. Using this options trading strategy as insurance to soften the blow of another down day will give most people the confidence to stay the course - and in an investment portfolio, that’s how you make money.

The down side is that if the stock doesn’t move down, you stand to lose some (or all) of what you paid for the put. The past few months have taught me that this is good tool to keep in your back pocket. I don’t think we’re moving out of this type of market anytime soon.

An Options Strategy For Playing Uncertainty For Profits

In addition to using options as an insurance vehicle, you can also take advantage of the market’s volatility to make some significant gains using options straddles.

Employing a straddle is when you buy a call and a put at the same time, literally “straddling” your position. As the underlying shares move up, you benefit from the increased value of the call. If the shares sink, your put makes some money for you. Just be sure to sell the losing side of the straddle when the trend surfaces. And let your winning options ride. This is a more expensive strategy, but one that could make a ton of money if our “bipolar market” continues.

As with all options, I always recommend you buy at- or near-the-money contracts - don’t be too much of a bargain shopper. Remember, you have to get close to the strike price for an option to start to pay off significant money. And don’t go too far out in time, either. Paying for extra time for your play to work may seem prudent, but it will end up costing you too much money.

Stay the course, use the strategies options trading affords you, and keep your eyes on the horizon.

Good Trading,

Steve McDonald

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Today’s Smart Profits Cribsheet

  • High levels of anticipation during earnings season presents spectacular profit opportunities… no matter what the broad market is doing. Take a look at the anatomy of a perfect strangle in Smart Profits #282, Option Trading Strategies: Option Plays That “Earn” Their Keep… To the Tune of 633%.

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Stop Loss

July 20, 2006

The Smart Profits Report: Issue #332
Thursday, July 20, 2006

Stop Loss: Three Reasons to Get Out of a Trade Before it Hits Your Trailing Stop
By D.R. Barton, Jr.
Advisory Panelist, Mt. Vernon Research

You just bought some options (or a stock, or a futures contract, etc.). You then place your stop loss with tender loving care - exactly where it should be, according to your plan. The stop loss is far enough away to avoid the normal fluctuations of the market and close enough to give you a good reward-to-risk ratio if things move in your direction.

And then it happens - a big move against your position. Within hours, you’re already 75% of the way to being stopped out. Ouch. I’m sure you’ve been there before. I know I have.

So what do you do now? Bail out? Stay the course? Kick the dog, or yell at the cat? Blame those stinkin’ floor traders? There’s a better way to handle this situation. Many investors have learned to stand pat and wait for the investment to hit the stop loss. This is often the best option for many trading strategies - for example, technical styles and value investing.

But there are times when prudent traders and investors will want get out of a position before their stop losses are hit. So let’s take a look at some reasons why you might want to consider adding an “early exit” contingency to your trading or investing plan.

When to Head for an Early Exit

When you place a proper stop loss in the right place according to your trading plan, in the majority of cases, you should stay in the trade until you hit your stop loss or your trading plan tells you to get out for some other reason. Bailing out on a whim, or at the first little move against you, can be frustrating - and ultimately expensive.

You place stop losses (trailing stops) for a reason: to protect your capital, while giving your investment sufficient room to work and grow. But there are instances when you may need to build a “contingency” plan into your trading strategy.

Our guiding principle for early exits is this: When the reason you got into your trade changes significantly, prepare to get out.

Here are three situations that you may want to add to your trading plan:

  • Technical Changes
  • Geopolitical or Other External Events
  • Time Factor and a Stagnant Investment

Keep reading for explanations of all three of these situations that may lead to an early exit.

Your Three-Step Early Exit System

Technical Change: Traders often make a trade because of a technical signal that told them to enter. After a period of time, while the security hasn’t hit your stop loss, that technical signal goes neutral or reverses and points in the other direction. Many systems do not take this change into account and simply wait for the stop to be hit. But if the reason you got in no longer exists, it’s probably time to get out.

Example: Your system is trading a simple long-term trend. When the fast moving average crosses above the slow one, you get an entry signal and buy. Let’s say a week passes and the fast moving average then dives below the slow one and heads down. If your system doesn’t recognize this as an exit, you could still be in the trade, waiting for it to hit your stop loss - even though your indictor is now clearly pointing the other direction.

Geopolitical or Other External Events: Often, major external factors strike markets, including the weather, armed conflicts or governmental actions. Such activities can signal significant changes that have wide-reaching effects on markets. It’s like building sandcastles in front of a storm surge - no matter how good your design, your project on the beach is going to get wiped out.

Example: This happened just last week, when I suggested that oil is destined to go lower in the short- to intermediate-term. But then, Israel and Hezbollah started an armed conflict just days later - and oil prices predictably saw a temporary spike. Good technical and sentiment analysis will always be trumped by big news in the short term. Unless the fighting in the Middle East escalates beyond the Hezbollah in southern Lebanon, we’ve already seen the highest oil prices for now and they will decline from here. As I stated in last week’s piece, if this escalates, or other oil-related upsets occur, all bets are off and you should re-evaluate your positions.

Time Factor and a Stagnant Investment: Most successful short-term traders also include a time component in their trading plan - especially when it comes to waiting for a position to move in their favor. If a short-term trader enters a position expecting a move and it doesn’t materialize in a certain amount of time, then a time stop is used and the position is exited.

The reasoning is this: If all the “buy” factors were lined up strongly and nothing happened, you’ve either lost the advantage and are staring at a 50/50 proposition, or the opportunity wasn’t as strong as expected. Either way, it’s best to get out and re-evaluate the situation without the influences and biases that an active position imposes.

This same reasoning is useful for longer-term traders and investors, as well. If you purchase a stock because the new management team is supposed to turn things around, or because of the benefits of a new product line, and the share price goes nowhere after months (or years), then it’s time to reassess the investment.

Your Well-Designed Investment Plan Needs Stop Losses

Stops are part of every well-designed investing plan. But be aware that there may be situations that arise when an early exit strategy is better. Do some pre-planning for situations that might arise, and build appropriate responses and contingency plans into your investment strategy.

Good Trading,

D.R. Barton

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Today’s Smart Profits Cribsheet

  • Deciding when to pull the trigger on an investment and sell is one of the most difficult - but very necessary - decisions an investor needs to make. Check out Smart Profits #133, Trailing Stops: How to Give Your Options Room to Grow - and take the emotion out of the situation by employing a stop loss policy.
  • I talked here about how external factors such as geopolitical issues and military conflicts can have an impact on your portfolio and stop loss policy. It’s something that affects all investors, so if you’re worried and wondering how to protect yourself, follow my simple “global guideline” in Smart Profits #320, What’s Happening in the Global Markets: The Global “Ripple’s” Headed Our Way.

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The Chart of the Week

Broadcom (Nasdaq: BRCM) has had a monster selloff since February, losing almost 50% of its value. However, it has hit strong support at its gap from July 2005. The stock is currently consolidating and has been for over a week. If it cannot close below $26.50 in the next five to 10 days, expect a bounce. A close below this key level spells more trouble for this stock with $18.25 as the next strong support zone.

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Online Broker Commissions

July 18, 2006

The Smart Profits Report: # 331
Tuesday, July 18, 2006

Online Broker Commissions: How to Get the Best Deal on Your Options Commissions
By Lee Lowell
Advisory Panelist, Mt. Vernon Research

There’s one aspect of trading that continually seems to frustrate and irritate beginners, mid-level investors and pros alike. Saving on online broker commissions is a great way to protect your bottom line and maximize your gains.

But it’s crucial that you get a handle on it, because no matter how many expert tips you incorporate into your strategy, if you struggle here, you’re always going to play catch-up and any gains you make will always be offset. And today, I’m going to show you how…

If You’re Paying $20 Per Order, It’s Time to Take Your Business Elsewhere

The beauty of the the Internet is that it’s revolutionized the way business is done and leveled the playing field for investors. Being online is more cost-effective and the flurry of competition has driven broker commissions costs lower. In fact, I’ve personally gone from paying $19.95 per stock option contract just a few years ago to paying only $1 today per stock option contract. That’s a sweet deal.

If you’re paying more than $19.95 per trade, then it might be time for you to either find a new broker or negotiate a new rate. So let’s take a look and see how you can get a better deal…

Reading A Brokerage’s Fine Print

First of all, watch out for the small print. While stock options are the simplest form of options commissions, they have pitfalls. Chief among them is the broker who charges you a low rate per options contract - say, $0.75 - but then tacks on the additional “minimum charge per order” fee, which can often be as high as $19.95.

Of the main players, I highly recommend optionsXpress, largely because of the array of free tools it offers to options traders on its website. This is an excellent site if you’re just starting out in the options world.

But there are cheaper alternatives…

If You’re an Options Oracle, You Need “Direct Access”

If you’re an advanced trader, you might want to consider “Direct Access” brokers. Services like this are much more high-end and cater to the very active, experienced trader who doesn’t need any help with trading. The online platform is very sophisticated and has a direct link to all the exchanges, which allows you to direct your trades to wherever you want.

And because they don’t need to walk traders through the options world and provide as much materials or help, it’s cheaper for them to run their business. That means they can pass those cost savings onto traders by way of cheaper online broker commissions.

One of the leading online brokers in this area is InteractiveBrokers.com (www.interactivebrokers.com). I use them for the bulk of my stock, options and electronic futures trades, and it’s a website that many other active, advanced traders use, too.

The huge bonus? Interactive Brokers charges $1 per option contract. No joke. That’s $1 per options contract, with no other fees attached whatsoever. It’s a great deal, especially if you trade in small quantities.

Once you’re comfortable trading, I advise you to make the step up to a direct-access broker and reap the rewards of lower online broker commissions. A couple of other alternatives in this category include: www.tradestation.com and www.thinkorswim.com. Both are highly regarded by the trading community and have a large following.

Why is the Futures Market Light Years Behind The Online Curve?

Unfortunately, the futures options arena is still light years behind the equities markets in terms of going all-electronic. This includes the commodities markets such as gold, silver, oil, corn, soybeans, coffee, sugar, cocoa, orange juice, cotton, bellies and hogs.

The simple reason for this is that the commodities exchanges still operate under the “human interaction” model, thus keeping broker commissions sky-high. And while you can certainly trade these contracts online, the orders are still handled by pit traders for actual execution.

In addition, if you want to trade commodities, this is where things can get a little tricky…

Because it’s a very different, distinct type of market, you’ll have to actually open a separate “commodities” account. You can do this through one brokerage if it handles stocks, options and commodities, but that’s the first requirement.

But I’m now about to expose one of the little secrets about commodity option brokers with regard to their commission structure. This is something I know they wouldn’t want me to divulge, but here goes!

The Commodity Brokers’ Dirty Little Secret

When you initiate a commodity option trade, the broker will charge you on a “round-turn basis.” This basically means that the broker is charging you up front for the opening and closing transaction - regardless of whether you end up closing the transaction. Specifically, I’m referring to options that expire worthless. When you buy or sell an option, you do so knowing that the option might expire worthless at expiration. And despite the fact that these options don’t need to be offset (because they’ll just expire), the brokers still charge you up front for both sides of the transaction anyway.

Sneaky, huh? This is something I bet many investors miss on their statements. Here’s the solution…

Don’t get caught out: Before you open a commodities options account, ask your broker to charge you on a “half-turn basis.” This means you’ll be charged the appropriate fees only when you make a trade. So, if you own an option that expires worthless, you won’t be charged for that side of the transaction.

I still don’t know why the commodities industry operates this way, but it does. So be smart and negotiate the half-turn basis if you can. Some brokers may oblige, but that might depend on your account size and how many trades you do. Just don’t be afraid to ask.

Your Traditional or Online Broker Action Plan

Here’s your action plan for today. Take a look at your brokerage:

  • What does it offer you?
  • Is it easy to use?
  • Are you getting what you need?
  • And more importantly, are you paying too much for your online broker commissions?

You owe it to yourself to get the best possible deal. Don’t shoot yourself in the foot before you’ve even begun to trade.

Good Trading,

Lee Lowell

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Today’s Smart Profits Cribsheet

  • Don’t become a trading expert… only to be let down by a bad broker. Get a handle on this part of your investment life today by following our quick guide to finding the right broker in Smart Profits #302, The Search for a Good Broker: Five Tip-Offs Your Broker’s a Fraud.
  • Of course, once you’re in the game, that doesn’t mean it’s over. There are going to be times when brokers are going to try to pull a fast one on you. Don’t let them! Find out how to break down the brokerage walls - and win the battle. Check out Smart Profits #112, Battle With Your Broker: Make Your First Options Trade in Three Easy Steps

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Option Spread Trading

July 13, 2006

The Smart Profits Report: Issue #330
Thursday, July 13, 2006

Option Spread Trading: How a Bear Spread Can Make You More Than One Put Options Trade
By Karim Rahemtulla
Chairman, Mt. Vernon Research

Hang onto your hat, because we’re going to dive headlong into the low-risk, profitable world of option spread trading today - both bear spreads and bull spreads.

The mere mention of terms like these can intimidate some investors and dissuade them from making the trade. Don’t be one of them. You’d be missing out on a great, low-risk way to grab profits.

Today, let’s see how to add this lucrative technique to your trading arsenal…

Expensive Premiums? Option Spread Trading Is The Answer

Option spread trades are my favorite trades in circumstances where option premiums are very expensive. So when you’re caught in that position, here’s a way around it…

Say you have a security whose share price is $20. You think it’s headed down. The obvious choice is to buy a straight put option, with a $20 strike price. Assuming it’s a LEAPS option, with implied volatility priced in, the option would cost around $2.50. That means your break-even point would be $17.50 ($20 minus $2.50). The most you’d risk is the $2.50 premium.

While some investors might think that’s a pricey premium and walk away, you don’t have to be one of them. There’s another choice…

Assuming that you don’t think the shares will fall below $15 within your specified time frame, you could enter into a bear spread.

How to Execute a Bear Spread

Using a bear spread simply means you sell another put option at a lower strike price (in this case, $15) against the put option you bought. By doing so, you essentially enter a covered position. Let’s say the $15 put option is selling for $1.25 - the equation goes as follows:

You buy the $20 put option for $2.50 and you sell the $15 put option for $1.25. Your total risk has now dropped from the original $2.50 to $1.25 ($2.50 minus $1.25). The most you can make on this trade is $5 - the spread between $20 and $15.

Let’s say the shares of the security close at $15 by the time your options expire. Remember that in the first case, your put was for the $20 strike and cost you $2.50. Your breakeven was $17.50. So if you just bought the original put option, you’d make a profit of $2.50 - the difference between your break-even and $2.50 - or 100%.

But here’s how a bear spread could make you more…

With the spread, your cost was $1.25. If shares of the security close at $15, you’d make a $3.75 profit on the trade - 200% in total and 50% more than with the original put option trade. Bottom line: Your real return is higher, your percentage return is higher and your risk is 50% lower based on this scenario.

And don’t forget… Like all options trades, you can trade out of a spread by simply reversing your transaction. This way you can still capitalize on a downward move, even if it occurs earlier than expiration. It would still be profitable as long as the shares were moving down.

Bullish? Simply Reverse the Play - But Watch Your Ranges

Naturally, this type of spread trade works equally well if you’re bullish on a security, too. It’s called a bull spread. In this case, instead of buying a put option and selling another put option against it at a lower strike price, you’d simply buy a call option and then sell another call option against it at a higher strike price. Once again, you’d reduce your overall cost and risk, but you’d also limit your upside.

And because your upside is limited, make sure you pay attention to trading ranges. If you think shares of a certain security will be rangebound, a bull/bear spread is perfect. If, however, you think a security is going to shoot to the moon, or plunge into a sinkhole, you wouldn’t want to limit your upside. You’d play it another way, or engage in a wider spread.

While spreads can be quite complex, once you know what you’re doing, you can use them relatively easily and enjoy some healthy profits. However, some investors simply dismiss spreads because they don’t take the time to understand them - and sadly, that includes some brokers.

When Your Broker Won’t Let You Trade Option Spreads…

Here’s a situation that should never happen…

In my LEAPS Trader service a few weeks ago, I made the call that the Nasdaq was set for a drop. It was the right call at the right time, and using a bear spread on the Nasdaq QQQQ, readers were able to clean up with almost 70% profits in just a few weeks.

Shortly after we closed the trade, however, I received a letter from one of my members, telling me that his broker wouldn’t let him do the trade.

If your broker won’t allow you to execute a spread trade, don’t give him your business. Fire him. If you look at the dynamics of a spread trade, there’s no reason why you should not be allowed to do one. Why?

  • First, you’re actually reducing your risk by reducing the amount of money that you have at risk.
  • Second, the options on a spread move in tandem.

If you’re doing a bull spread, and the share price moves higher, the options you bought also increase in value, as well as the options you sold. In fact, the options you bought actually increase in value faster, since they’re closer to the money than the ones you sold - hence your risk decreases with every tick up.

As long as you’ve covered both sides of the trade, the broker is not at risk any more than he would be on any other covered trade. His only argument arises if he says: “What if you sell the initial option that you bought, but decide not to buy back the second half of the spread?”

Avoid Scaring Your Broker With Naked Options

In that case, you would now be “naked” - a situation that scares the heck out of most brokers. That’s because when you’re naked, you’re out in the open, with unlimited liability. You could lose some big bucks and your broker is on the hook for it. Simply put, this is a situation you want to avoid at all costs - and most brokers won’t take the risk here, either.

Fortunately, most brokers believe you will trade rationally and will simply ask you to put up more collateral in your account, to make sure you make good on your promises.

The point is this: My member’s unfortunate situation with his broker is avoidable. If you want to make money using one of the best options strategies around, you need to enable yourself to do so. Don’t miss out on a trade - and potential profits - simply because your broker says you can’t do it. That’s never going to make you wealthier.

Sure, your broker might sleep better, but all you’ll get is frustration, having been needlessly deprived of a powerful trading tool. If that applies to you, make the move and find a better broker today.

Good Trading,

Karim Rahemtulla

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Today’s Smart Profits Cribsheet

  • Immerse yourself in the art of the “spread.” Read more on this excellent, low-risk trading strategy and discover the anatomy of the perfect spread trade. It’s a tool that can make you a better, more successful trader… right now! See Smart Profits #216: Spread Trades & The Market Maker: Two Valuable Options Lessons from Boston.
  • As I said earlier, spreads work on the downside and the upside… See how you can use spreads to play both sides of the market in Smart Profits #151: Understanding Bull Spreads: Make 1,000% or More by “Spreading” the Wealth.

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The Future of Crude Oil Prices

July 11, 2006

The Smart Profits Report: Issue #329
Tuesday, July 11, 2006

The Future of Crude Oil Prices: How a New Saudi Development is Bearish for Oil Prices
By D.R. Barton, Jr.
Advisory Panelist, Mt. Vernon Research

On August 31, 2005, Hurricane Katrina had just devastated the U.S. Gulf Coast and dealt a serious blow to crude oil distribution and refining capacity. While the event was catastrophic, it was extremely bullish news for crude oil, and crude indeed hit an all-time high. I wrote on that day that due to a combination of sentiment and technical indicators, prices should head down. And head down they did, selling off 20% over the next three months.

Then, on May 3, 2006, I wrote about the confluence of technical indicators that signaled another intermediate top in oil. In addition, bullish news (nationalization of natural gas fields in Bolivia) failed to take prices higher. And oil dropped 8% off its highs in a matter of days.

And back in the Smart Profits Report Oil Forum on May 19 (see today’s Cribsheet below), I noted that after a major run, oil trading momentum was dropping and that prices were making a series of lower highs, down between $71 and $72 a barrel. This signaled that crude oil had hit a short-term top and that prices should head down from that point. True to form, that happened, as prices dipped below $69.

So why the review? Because history is repeating itself. Oil has again hit an intermediate top. Will oil go higher in the long-term? Yep. I’m a long-term oil bull. But are they done for now? Yep again. Technically, and from a sentiment perspective, the future of crude oil prices should once again take a breather. Here’s why…

The Case for an Intermediate Drop in Oil Prices

First, let’s look at the sentiment analysis. The simplest form of sentiment analysis (and one of the most effective) is news analysis. And we got a big story on Monday, with The Wall Street Journal running a front-page story about Saudi Arabian efforts to recover heavy crude oil.

Heavy crude is thicker and usually contains more impurities (sulfur and metals) than “light sweet” crude. In short, it’s harder (or nearly impossible) to pump and more costly to refine.

So why is this news? The Saudis have the world’s largest reserves of light sweet crude. So to show an interest in getting at their heavy crude is a bit of a policy change. And more importantly, the vast majority of their heavy crude is NOT included in their published figures for “known reserves.” So if they figure out a way to extract their heavy crude oil, that would increase the amount of oil the Saudis could sell. And that’s bearish for oil prices.

Most importantly from a sentiment perspective, crude prices reacted negatively to the news. And this came after an all-time high was made in crude prices. While price action that confirms news isn’t quite as powerful as a diverging reaction, it is still a very useful indicator.

And fortunately, we have some other tools in our analysis bag…

Technical Charts Show a Price-Momentum Mismatch

On the technical side, we have two interesting indications to look at. First, my favorite tool for gauging price tops (and bottoms): price-momentum divergence. Take a look…

Crude Oil Price Action Mismatched w/ Momentum

This chart shows the test of the highs on Friday, July 7, 2006. But in true topping fashion, the price action rejected the new high and finished the day very weakly (a bar that is called a Key Reversal).

In addition, my favorite momentum indicator - the Moving Average Convergence-Divergence (MACD) - gives a clear indication. MACD is a tool used to show price momentum (or the rate of change of prices).

  • When the MACD is moving up steeply, prices are accelerating quickly.
  • When the MACD is moving down fast, prices are moving down at an accelerated pace.

So what this chart shows is price action that is mismatched with momentum. Prices are making nominal new highs, while momentum is divergent from the levels of the old highs. This is a bearish sign for prices.

What’s Next for Crude Prices?

While no analysis is foolproof, the intermediate-term case against higher crude is pretty strong. I expect to see lower prices.

The main risk factor in this analysis is an outside news event. This includes terrorist attacks, such as today’s seven train bombings in Mumbai, India’s financial capital, or other politically destabilizing news in oil producing regions. We’re also entering hurricane season, so be aware of the effect storms can have on oil prices.

Good Trading,

D.R. Barton

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Today’s Smart Profits Cribsheet

  • Be sure to check out my analysis of oil prices in the Smart Profits Report Oil Forum from May 19. In it, I present the case for long-term bullishness, but a short-term drop - and why $68 is a key level. Visit it to read my take!
  • Oil isn’t the only commodity we’re bullish on in the long-term here at Mt. Vernon Research. In fact, besides oil, the editors of our flagship newsletter, The Xcelerated Profits Report, are also bullish on three other commodity plays and recently gave readers specific investment recommendations on each. To find out how you can join them, please visit this link.

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The Chart of the Week

Today we’ll look at a crude oil chart one more time, for another significant piece of the technical analysis puzzle.

Daily NYMEX Crude Oil Continuous Contract Aug06

As you can see, the chart has a set of Bollinger Bands attached. A standard Bollinger Band is simply a price band with the upper and lower bands plotted two standard deviations above and below a simple moving average.

The amazing thing about the chart is that there was only two significant breaks of the upper band in the last year. Both led to big price drops. The third break of the upper band is from Thursday and Friday of last week, adding to our case for a downward price move.

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D-Day for the U.S. Dollar

July 10, 2006

The Smart Profits Report: Issue #328
Monday, July 10, 2006

D-Day for the U.S. Dollar: As the Fed Gets Back to “Normal,” Why August 8 is Key
By Jim Stanton
Advisory Panelist, Mt. Vernon Research

Do you remember the “triple whammy” of 2001? You should. These three forces combined to form a potent cocktail of market turbulence that set the U.S. back on its heels for a significant time.

  • We had the brutal bear market, due to an inevitable correction from the heady bullishness in the late 1990s and the fallout from the dotcom crash.
  • That led to declining consumer confidence and a steady erosion of consumer spending, which stifled economic growth.
  • And as if that weren’t enough, America then endured the worst terrorist attacks in its history on 9/11.

Amid the upheaval and two subsequent wars in Afghanistan and Iraq, the Federal Reserve took extreme measures and sent the Fed funds interest rate down to the lowest level in decades - 1% on June 25, 2003. A year later, the Fed began to raise again. Two years and 17 straight interest rate hikes later, the base rate now sits at 5.25% - with another 0.25% increase to come on August 8.

What does this mean? Even though the trend started more than five years ago, it still weighs heavily today - and wields a potentially dangerous impact towards a D-Day for the U.S. dollar…

Fed Gets Back to “Normal” - But Dents the Dollar?

Both the rate cuts and increases were necessary to stabilize the economy. And while economists and investors continue to fret about where interest rates are going, the fact is, the Fed has merely brought rates back up to “normal levels.”

That’s why August 8 is a key date…

Fed Chairman Ben Bernanke will raise rates one more time, then stop - a move that will make the value of the dollar much more important.

Take a look at the chart below, showing the dollar’s weekly performance since April 2003. As you can see, the Dollar Index reached a low around 80 in December 2004 - just two points above the 1992 low. 2005 signaled a major reversal, with the dollar rebounding back up to the 92.70 area by November. But it couldn’t sustain its run and the greenback could now be in trouble…

The Dollar's Weekly Performance Since April'03

As you can see, the nine-month slump has resulted in the dollar setting up a reverse head-and-shoulders pattern. Although this is generally a bullish trend, it would have to close above the “neckline” at 92.70 in order to trigger a buy signal.

Right now, that scenario looks like a tall order - and one that could take several weeks or months to occur.

The Dollar is at a Pivotal Point

Let me show you what I mean…

Below is a daily chart of the Dollar Index that shows a regression channel drawn from the highs set in November 2005.

Daily Chart of the Dollar Index in November'05

There are two scenarios here:

  • Bearish: The low of the right shoulder is 83.60, set in May. At current levels, the index is just two points away from that level and a close below it would violate the head-and-shoulders pattern.

So is there a glimmer of hope? Yes…

  • Bullish: If the index can close back above the upper channel of the regression line, which is currently around 88, it should propel the index back up to test or break the neckline. At current levels, the index is about three points away from the top of the regression channel.

Fed to Pause in August… Unless Dollar Makes New Lows

From 1992 until the dotcom bubble burst in 2000, the dollar jumped a remarkable 55% against other world currencies before the bear market began. Tax cuts helped reignite the economy and pushed stocks higher, but apart from the added expense of the war and last year’s hurricanes, Congress went back to its old ways of deficit spending and the dollar gave back most of gains it chalked up in the 1990s. So much for a “strong dollar policy.”

Aside from the Japanese yen, most of the world’s most important currencies are at or near long-term highs versus the U.S. Dollar and it now costs more than $0.90 to buy a Canadian dollar.

The U.S. government cannot allow this trend to continue.

The Fed’s Defense Against a Weaker Dollar

While a weaker dollar would help exporters and slow the rapid expansion of the U.S. trade deficit, the negative effects far outweigh the positive ones. Among other things, a weaker dollar usually causes a rise in inflation. In addition, foreign investors, along with their governments, may begin to liquidate their dollar-denominated assets, which in turn, would put pressure on the stock and bond markets.

The Fed’s main defense against a falling dollar (and inflation) is to raise interest rates. As long as the Dollar Index stays above 78, the Fed will probably stop raising rates after its August meeting. But if the dollar makes new lows, higher rates are likely and stocks will suffer.

Good Trading,

Jim Stanton

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Today’s Smart Profits Cribsheet

  • Let the Smart Profits Report broaden your investment knowledge and improve your success rate by adding the important “head-and-shoulders” term to your arsenal. This trading pattern is a key technical tool I use to gauge which direction a security is headed next and whether it’s time to sell. Learn more about it in Smart Profits #291, Head and Shoulders Pattern: A Proven Sell Signal Called Breaking the “Neckline”!
  • Of course, knowing the right time to sell and having the discipline to do so is arguably the most important - but one of the most difficult - decisions you have to make as an investor. Pick up a few tips from seasoned options trading veteran Steve McDonald in Smart Profits #288, Sell to Close Options: How “Patient” Trading Turned $8,000 into $192,000.

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