Cash Cow Newsletter April

Transcription

1 Cash Cow Newsletter April In this week s Cash Cow newsletter I would like to analyze the current state of the market and review strategies that can help protect us in high volatility environments. We will also look at several new profit opportunities. The S&P 500 rallied 1.05% today and is currently trading near the middle Keltner Channel. It appears that the $SPX has risen above a short-term resistance line. The previous three times the $SPX broke resistance after dropping to the lower Keltner Channel, it went on to rally: 1

2 The S&P 500 daily price chart below shows lots of volatility this year but is virtually unchanged on the year. If your timing is not good during this type of market you can easily get stopped out of a stock or option trade. We normally use a 10% stop loss for stocks and 30% stop loss on options due to the leverage options provide. Spreads have downside protection that can help us maintain our positions during volatile price moves without getting stopped out. High Volatility/ Virtually Unchanged YTD In my two retirement accounts I trade Market Neutral Spreads, Married Puts, Covered Calls and Option Debit Spreads. My brokerage account Profit/Loss Reports for my two retirement accounts that follow show that I currently have $388, in open trade profits in retirement account #1 and $168, in retirement account #2 for a total of $557, The average return for the two accounts is 59.8% which is a great return for the current market environment. I took the snapshots of my two accounts yesterday when the Dow was down 85 points and the NASDAQ was down 1.66%. At the bottom of the Profit/Loss Reports there is listing of the profit/loss for the day. It is interesting to note that while the broad market was down when I took the snapshots, one of my retirement accounts actually had a small gain of $397 for the day and the other account had a small loss of $307 demonstrating the ability of the spread trades to reduce losses during down moves in the markets. 2

3 Retirement Account #1 Nasdaq Down -1.66% Dow Down -.53% Continued on next page.. 3

4 Retirement Account #1 Continued 4

5 Retirement Account #2 5

6 Retirement Account #2 Continued This week we are going to use our Call Option Debit Spread, Covered Call, and Married Put spread strategies. 6

7 The first profit opportunity we'll look at is TNA (Small Cap Bull 3x ETF): TNA is a triple leveraged ETF that tracks 3x the performance of the Russell 2000 Index. The ETF is in a 50/100-Day EMA uptrend that s confirmed through the presence of an up-sloping On Balance Volume. Leveraged ETFs like TNA typically offer rich premiums. Right now TNA option premiums are unusually high. We can take advantage of this by initiating a weekly Atthe-Money covered call on this ETF. At current prices the TNA April 25 th 70-strike Covered call has a 9% or $577 profit potential. The following page shows a return analysis of this trade (by expiration). You can see that if TNA increases in price, stays flat, or decreases -2.5% by expiration, we will profit. This trade has a good profit potential and decent downside protection for a 1 week period. 7

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9 The next profit opportunity we ll look at is URI (United Rentals): URI is currently in a 50/100-Day EMA uptrend that is confirmed through an up-sloping On Balance Volume. The stock closed near the middle Keltner Channel, offering us a good entry point for a call option spread. At current prices the URI May 17 th 80/90-strike call option spread has a 39.9% or $285 profit potential. If URI stays flat or increases in price by expiration we will profit 39.9%. If URI decreases -2.5% by expiration we will profit 28.7%. 9

10 The last profit opportunity we ll look at is AB (AllianceBernstein Holdings): AllianceBernstein Holdings provides investment management and related services internationally. The stock is currently in an uptrend, and is trading near the middle Keltner Channel. AB pays a 9.6% annual dividend, which makes this a good candidate for a Married Put. For those of you unfamiliar with this strategy, a married put is initiated by simultaneously purchasing 100 shares of stock and 1 put option. Currently the AB July 19 th 22.5-strike Married Put has unlimited profit potential with a maximum risk of -11.4%. The following page shows a return analysis for this trade. 10

11 Note: Profit performance displayed in this newsletter does not include transaction costs. This newsletter includes some trading ideas following Chuck Hughes trading strategies along with educational information. For a complete listing of Chuck s exact trades, including specific entries and exits and real time Portfolio tracking, please call Brad at or Cash Cow Newsletter Archive Click on the link provided below to access the Cash Cow Archive. Cash Cow Newsletter Archive: 11