June 7, 2010 Weekly Newsletter

Good Afternoon Traders,

The three main indices are still taking it on the chin and there is still plenty of economic and social anxiety to go around.  Option4Options, LLC trusts that you are prepared for what the market brings us this week as our economy seems to be sliding into a bear market.  Our weekly newsletter is meant to help educate you, inform you and give you option trading ideas.

Today's Newsletter will discuss the following:
 

Market Outlook, Briefly Speaking!

20 Steps to Smart Online Investing with Options

Market Outlook, Briefly Speaking!

Friday and today’s sharp decline has sounded warning bells that this might not be just a quick pullback in the market.  For this reason careful consideration needs to be used before increasing equity allocations in your portfolio at this time.

The major equity averages have booked another round of broad-based losses most likely due to a lack of news flow.  Stocks seemed to have lost direction as the Euro fell under more selling pressure to $1.192 at the close of trading representing a drop of 0.4%.  Losses were sharp in the industrials as all 57 companies closed in the red.

The weekly economic calendar is fairly light with the most important report, the Fed Beige Book, due out Wednesday afternoon.  The Fed Beige Book Report is a synopsis of the economic data used at the rate meetings.  With the disappointing employment report on Friday, the comments on the labor markets in each of the Fed districts will be looked at more carefully.

Two other important reports coming are the Trade Balance for April due out on Thursday and the Retail Sales for May due on Friday.  If we see declines for April, the May Trade Balance will probably show massive declines due to the recent strength of the US dollar.  May Retail Sales are expected to show positive growth but not as good as in the past couple of months which may be the slowest growth rate since December.  The economic recovery may be impacted by consumers since they are showing a willingness to save rather than spend at this time.

Today’s action made an important point.  Don’t chase stocks higher and get burned!  We may need to be cautious and defensive for the time being since things are getting worse and not better.

20 Steps to Smart Online Investing with Options

Online Investing using stock investing and options can be a powerful way to enhance your income, profits and retirement funds in bull markets and bear markets.  Investors, who want to generate income, manage risks, and take control of their online investing might consider these 20 steps to smart online investing with options:

1. Set up your online trading Account.  Find a reputable discount broker, with low fees, that has a Free Virtual Stock Trading platform, extensive tools and research and is noted for options.  Apply for a level of permissions that will allow options trading.
2. Seek out stock and options education.  Comprehensive trading education covering investing basics and complex trading strategies to fit your experience is important.  Subscribe to a free options trading newsletter.
3. Master broker trading tools.  Powerful online investing tools help find, analyze, and monitor options trading strategies, investments and their performance.
4. Diversify for portfolio protection.  Enhance portfolios with a mix of options strategies to make money in Bull Markets, Bear Markets, and Sideways Markets.  Implement options strategies to give enough time but, if the trade gives great profit early then sell, change, or re-arrange the trade structure.  Go long for improving sectors and go short for declining sectors.
5. Income generation is the key to consistent returns.  Options can be used to generate cash from stock holdings in a variety of market conditions.  Covered call or put writing is an options strategy to earn income against stocks and is actually more conservative than just buying a stock.
6. Explore option trading strategies.  Covered calls, calls, puts, spreads, vertical spreads and backspreads offer many choices for profitable option strategies.  Start off using conservative options strategies to gain experience.
7. Understand market outlook and direction.  Market outlook and direction is crucial to investment success.  Read 5 articles a week from professional newsletters, brokers, financial advisors, and others.
8. Pick top stocks in each market sector.  Make a list of fundamental criteria to match investment goals.  Include items like debt ratios, Price/Earnings ratios, Price/Sales ratios, profit margins, and growth rates.  Run regular scans to find the top 5 companies for each sector.
9. Pick terrible stocks in each market sector.  Scan for negative fundamental criteria.  List the worst possible companies in declining sectors, heavily in debt, with high P/E ratios, declining sales, and so on.
10. Learn technical terms and analysis.  Evaluate securities by analyzing statistics generated from market activity, past prices and volume.  Technical events reveal patterns and indicators that help predict future stock performance with technical terms like Bollinger Bands, MACD, Overbought, Oversold, RSI, and SMA.
11. Use broker tools and advice.  Self-Directed Investors need the advantage of powerful online trading tools, dedicated resources and service that online brokers give options traders.  Benefits include ideas for portfolio protection, income generation, lower costs, comprehensive trading education, and more.
12. Set alerts for top stocks and the worst stocks.  Set up market-triggered alerts to monitor lists and as markets move, the information will come quickly and easily.
13. Learn to read the charts.  Advanced charts give power to recognize technical patterns, examine potential trading strategies and allow the use of dozens of technical studies to mix and match those strategies to suit trading styles.
14. Use money management techniques.  Money management is critical in options trading to prevent overexposure and preserve assets.  Place limits on the trade size equal to a percentage of the total capital you have to invest.  An instinctive mistake is to raise trade amounts during a losing streak but lower it during a winning streak.  Therefore, cut losses short and let profits run.
15. News, market commentary and key upcoming dates.  Check the news, market commentary and upcoming dates before trading and after the trade.  Bad news or commentary can adversely affect the direction of the trade.
16. Market analysts’ upgrades and downgrades.  Analysts make a living checking out companies and the markets.  Adverse public statements can greatly affect a trade position.
17. Pre-announcements of earnings and economic reports.  Sometimes companies pre-announce their earnings for a soft landing or to control public reaction.  Should the rules or economic picture change, look out!
18. Check fundamentals and evaluate.  Know your companies both inside and out.  Study their business structure, product lines and competitors.  Stocks with the best products in the best sectors and no competitors are great long term investments.  On the contrary, stocks with a dying product line in a declining sector with too much debt and too many competitors, may be great candidates for a put option.
19. Use a disciplined approach.  Stock options are volatile and can move quickly.  A disciplined approach can keep you from acting on emotions.  If your option strategy is based on good fundamentals, you have a better chance of trading success.
20. Practice with FREE Virtual Stock Trading!  Practice your online investing with Free Virtual Stock Trading for the best way to learn options trading without the risk of today’s stock market investing.  Even experienced traders can benefit from practicing their complex options strategies before placing large amounts of capital on the line.

If you have a story you would like to share then please share it by emailing us at :

newsletter@option4options.com

We hope our market outlook, education materials and suggestions will be helpful for your trading success.  Please visit our website to view other information and strategies that may interest you at:

 www.option4options.com

Good Luck with your Online Investing!

Option4Options, LLC

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