It's a Jail Break!!! Don't overthink what the market may be saying

Fellow Friends and Traders,

There are numerous concerns out there right now and yes at some level the market will have to come to grips with those concerns but that's not today.  Sometime later this year or early next year China will have to address its speculative bubble. At the same time we will be looking for our economy to fall off.  Right now stocks are breaking out all over.  Even Citicorp crossed its 200 DMA. Rates will remain low as there isn't a hint of inflation anywhere. Go with the flow and begin to trade more aggressively given the strategies I've outlined in previous newsletter. Have patience with stocks for now they are no longer attractive investment vehicles.

Not even a two week 20% bear market in the Chinese stocks could halt the rise this week. We came into the week looking for weakness. "They" wanted the market lower to maximize option profits. Early the S&P market hit 975 down 40 points from the previous week's high. It was up, up and away after that.

Friday morning the market opens at major resistance.  On one hand, we were poised at a perfect inflection point, major overhead resistance at 1015-16. On the other hand, good economic news, 4 to 1 advances to declines, we just might break out into new yearly highs. Calls were not cheap.  Even the OTM's were selling at $2.00. Yes, the odds favor this purchase. We could easily double our money on the breakout.

There is another even better choice if money is not a factor, i.e. at least a $50,000 account. Do a simultaneous hedge with cheaper puts slightly OTM. These puts were selling under $1.00. Buy 100 puts @ $1.00 and go long 75 E-minis (margin $500 with 10 point stop). We need $10,000 for the 100 puts and $50,000 for the e-minis. If you were a normal call buyer you might buy 20-25 calls for $5,000.

Please see the attached. The market broke out as expected. Calls valued at $2.00 could have been sold for over $5.00 more than doubling our money with $2,500 risk with a 50% stop loss. The S&P rallied over 13 points in a straight up move netting say $600 per E-mini X 75 = $45,000 profit. The puts could have been sold for at least $0.35 losing $6,500 for a net gain of $38,500. Yes, the calls made a better percentage return but given the larger E-mini position a trader could have taken with hedged protection.  The dollar return was at least 6-7 Xs as great.

Furthermore, had the market declined instead of rallying the hedged trader could still make money while the call buyer would lose. The hedged trader only loses if the market stands still for over 2 hours and then only about $4,000. Given our markets today that was highly unlikely. No one teaches you how to make money this way in these markets.

There was even another hedge trade opportunity after 1:30. The market sold off to the higher support level. However, in hindsight, the better easier trade was to buy the calls under $0.75 which hit $0.60 around 2:00 and then reached a high of $1.85-1.90 for almost a 3X return. (See chart attached below.).

This is the reason I un-retired. A trader can now take on even larger positions than thought possible before without necessarily increasing his overall risk, can substantially increase his profit potential and now possible to earn a seven figure income along the way.

Keep those cards and letters coming.