Are you profiting from the US Options Strategy Bonanza right now?
We are noticing an increasing number of our clients taking up our US Options Strategy recommendations. As a business, we are committed to providing service to our clients on both the Australian and US markets, opening the door to a massive and wide range of opportunities.
Some clients remain dyed in the wool, as far as only taking Australian market trades, but more and more are trading both. The economic data, as we have discussed for some time, has continued to be robust in the US, as the massive increase in money supply has pumped up economic activity. The view is simple – if there is a hosepipe of cash pumping the market, best make sure you get your share of it.
For a good few months now, my personal positions have been more skewed to the US than the Australian market. Not because I am jumping ship, I have simply tapped into the opportunities that have been presented on a silver platter. Like our clients, I receive the recommendations via SMS and, like many of our clients, I also take the trades. Markets reward action takers!
Last night’s data pointed toward several positives I relation to the US economy. Consumer sentiment and confidence was again, up, as was housing. Last month many of our clients took our recommendation on Lennar Corp, a US construction company. This has been the second time this year that we have traded LEN, and the second trade on which we have banked profits.
The options strategy was a calendar spread – buying the long dated call, selling the shorter dated. Based on our clear position management of the trade, we have now closed this position out, on the 21st of May, locking in a gross return of 48.5%. We may seek to re-enter this trade.
This is a clear and simple example of joining the dots between news and opportunity, and then actually clicking the trigger. For some months now, we have discussed the growing base of positivity in the US, and this has been reflected through the performance of many stocks, Lennar Corp being just one example.
Volatility and your Options Strategy
Volatility has increased in the past few sessions and this has provided us and our action taker clients, with a great opportunity to capitalise. One of our positions is a calendar spread on the VIX – the Volatility Index. Buying a longer dated call option – during the previous period of low level volatility and selling shorter dated is looking good. We anticipate being in this trade for a period of time and as the shorter dated options expire, reselling in a more volatile environment should generate a decent income from the trade.
Understanding the impact of volatility on trading and in particular, options trading is absolutely paramount as it can really make or break your strategy. All too often, the focus of options trading and education is on time decay – a critical component but by no means the full story. I would estimate that volatility has 4 times the impact on an option’s price than time decay on a by unit basis. As a result, this VIX position is sitting on my account, as I hope it is yours. If you didn’t receive this trade from us, click here and we will get you back in the drivers seat.
Thanks, Bernanke, thanks
A third and final trade for this week’s newsletter – and another I am holding across my accounts – is our recommendation on TBT – the Ultra Short US Treasury Exchange Traded Fund. This ETF will increase in value as the price of US Treasuries fall/yields rise. With the amount of quantitative easing in the US, combined with a lack of inflationary pressure in the economy, it is not likely, at least in the immediate future, that we will see a sharp move in Treasury prices. A stable or indeed falling bond market suits us just fine.
Again, this is a calendar spread – meaning a far smaller and more leveraged exposure to the US bond market, that requires low levels of cash outlay on your part, make this very appealing. We have traded TBT several times already this year and again, this is shaping up well. As I type, and I’m just doing some sums now, the position is sat at about 20% profit, and a further nudge higher – to say around 30% and we will likely wash this one off the books for another tidy profit.
If you have yet to take any of our US options strategy recommendations, perhaps now is the time to consider it – After all, if not now, when will be a good time?
Next time you get an SMS or trade alert from us, call the dealing desk and find out more. If you currently do not receive SMS’ from us – click here and we will be able to assist you.
The point is, that there is a profit bonanza going on and you deserve your slice of it. Click here and let us show you how