The past couple of weeks have provided a great opportunity for those with the right investment strategies to profit from the recent market pullback. With markets pausing for breath, hardly surprising given the strong run they have enjoyed, not to mention; Cyprus and its bailout, North Korea and its political stoush with the rest of the world, and locally, an increased level of political uncertainty, some level of nervousness has been present, giving us the pullback we were looking for to re-enter the market. This shaking from the tree, those that were uncertain, plays right into the hands of the market pros who simply use this backdrop as an opportunity to profit, by getting set a lower prices.
What investment strategies are we using for our clients?
Looking at the US, which can often provide a deeper insight into the market psychology, investors have used every dip this year to re-enter or add to positions, providing good additional support for the market’s moves higher. Recent articles with Bloomberg and MarketWatch have reinforced this view and this is likely to be what we are seeing locally.
When looking for an entry signal, following a pull back in the market, it is not simply a case of ok, time to buy now because it’s cheap!
Specific signals are needed, to avoid the dangers of catching a falling knife. From my own perspective, I have an ABC format that I have used for years which relies on both a technical and fundamental set up. As an entry it tends to work well.
The question then becomes how do you enter into the trade? From a stock and options perspective, the opportunity presents itself to enter into the position with a reduced cash outlay (taking some of the dollar risk away from re-entry) and right now, my preferred vehicle for this is the good old calendar spread!
A calendar spread is an options investment strategy, where we buy the long dated call, providing a good leveraged play to a bounce in the stock, albeit at a cost. To soften this cost, the selling of a short dated call can be one approach to take. We have several positions running in this fashion right now, with our clients – including CBA and Fortescue, locally, as well as Apple and Sears in the US market. In addition, we are also setting traps for the coming round of dividends – enabling you to collect the easy money – that of the dividend. Add to this, some deft options work, which will also augment your cashflow.
Now, here’s the thing – perhaps you saw the trades we emailed and SMS’d to you and have yet to get back in. This is understandable, given the nervousness that many retail investors can have, when it comes to trading and investing. The GFC is still a strong memory for many investors. Equally, you may have noted the increase in volume of US trades we have been publishing recently, and perhaps are less familiar with these trades – that being the case, give us a call, or request some further information and we would be delighted to help.
One thing for sure, sitting in cash and on the sidelines is not an investment strategy. Inaction – be that through a lack or loss of confidence is easily fixed though and we can help you with that. Speak to one of our trader coaches, attend one of our live bootcamps, come see us for a one-on-one, flick us an email, send us a smoke signal, but whatever you do, don’t miss out! Contact Us