March 2nd, 2009

Option traders, if "Commodity Options" can save you one tick...you will recoup most of your investment.  Get it now through Amazon.com (discounted) or Borders.com!

Global equities spiral

Early morning news of AIG posting the largest quarterly loss in U.S. corporate history and the government's pledge to put even more money in the black hole known as American International Group sent equities spiraling lower.  The Dow traded below the 7,000 thresh-hold for the first time since May of 1997.

The U.S. government originally injected $150 billion into AIG and is now loaning the former insurance giant $30 billion.  Investors are also worried about the health of the global banking system in light of struggling European banks such as HSBC, which reported a 70% drop in 2008 earnings.

Bill Strazzullo, chief market strategist for Bell Curve Trading noted that "As bad as things are, they can still get worse, and get a lot worse."  According to the analyst, there is a chance for the S&P 500 to trade as low as 500 and the Dow 5,000 to bring the indices to their 1995 levels.  I am not as pessimistic as Mr. Strazzullo but I think that his interpretation of the weakness in the market is valid. 

While the market is at risk of a sharp short covering rally at any time, my chart analysis suggests that major support may not be found until 677.  Similar support in the Dow lies at 6,720 and near 1020 in the NASDAQ.  I am looking for a relief rally but suspect we will see a little lower before we see higher prices. 

We were recommending selling the March 620 puts for $8 or better, but later changed our price to $7.25.  Assuming a fill at $7.25 or $362.50 per mini - contract ($1,812.50 for the full sized contract) the max profit is the amount collected minus commissions and fees.  The risk is theoretically unlimited beneath 620.  Keep in mind that our intentions with this position is to be extremely nimble, a quick profit should be taken as overstaying a welcome could be disaster. 

P.S. If you are interested in option selling, or option spread trading in the stock indices order a copy of my book "Commodity Options".  If it saves you just 1 tick in the markets, you will have recouped most of your investment!

Sorry so short, we are a little behind.  Feel free to contact us if there is anything that we can do for you.

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations are based the full sized S&P unless otherwise noted.

S&P 500 Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

March 2nd - Sell a March S&P 620 put for $7.25 or better ($362.50 in a mini and $1,812.50 for a full sized contract).  Place an order to buy this back at $3.  The risk is unlimited and the profit potential is limited to the premium collected.  Be careful with this one!

Please note: A mini-sized Dow chart is used because it is better for charting purposes, but trade recommendations are based the full sized Dow unless otherwise noted.

Dow Jones Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

Flat

Please note: A mini-NASDAQ chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.

NASDAQ Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

Flat

*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

There is substantial risk of loss in trading futures and options.