Thursday, June 26, 2008 1:43:17 AM
Attn LOTTO options traders:
I just want to issue caution when playing options in this volatile market. I believe there will be another spike over 25 on the VIX soon. That means another round of fear and capitulation in the major indexes, imo. This afternoon's earnings from some of the major players helps support the idea that the DOW will break the March Bear Sterns lows and take the rest of the market down with it.
Let me put it this way. Do you believe in Triple Bottoms on the Dow Jones? I don't. The Dow double bottomed last August and November, then set a new double bottom low in January and March. Tomorrow looks like a crossroads once again.
Whether you are long or short when the trade goes against you, it's IMPERATIVE that you have the discipline to exit your option position ASAP because your recovery will depend on much you are in or out of the money. If you don't know what that means please look it up before you trade options. The more out of the money you are in an option position, the LESS likely your option will recover EVEN IF the stock price recovers.
If the trade moves in your favor then be smart and set a trailing stop to protect your profits. You never know when that internet connection will go out or your computer will crash at the worst moment.
I would also like to recommend to options traders that they try out positions in the major indexes via ETFs like Powershares, Proshares, and SelectSPDR. QQQQs are some of the cheapest and most manageable options available for this purpose. They move in small increments but that can also work to your favor if the trade moves against you. Imo, it makes a lot more sense to trade the movements in the major indexes as opposed to grossly overpriced options and spreads in the front month contracts for other "hot stocks". Sure playing stocks as opposed to indexes can lead to bigger gains, but can you afford to lose in this market?
Good luck!
I just want to issue caution when playing options in this volatile market. I believe there will be another spike over 25 on the VIX soon. That means another round of fear and capitulation in the major indexes, imo. This afternoon's earnings from some of the major players helps support the idea that the DOW will break the March Bear Sterns lows and take the rest of the market down with it.
Let me put it this way. Do you believe in Triple Bottoms on the Dow Jones? I don't. The Dow double bottomed last August and November, then set a new double bottom low in January and March. Tomorrow looks like a crossroads once again.
Whether you are long or short when the trade goes against you, it's IMPERATIVE that you have the discipline to exit your option position ASAP because your recovery will depend on much you are in or out of the money. If you don't know what that means please look it up before you trade options. The more out of the money you are in an option position, the LESS likely your option will recover EVEN IF the stock price recovers.
If the trade moves in your favor then be smart and set a trailing stop to protect your profits. You never know when that internet connection will go out or your computer will crash at the worst moment.
I would also like to recommend to options traders that they try out positions in the major indexes via ETFs like Powershares, Proshares, and SelectSPDR. QQQQs are some of the cheapest and most manageable options available for this purpose. They move in small increments but that can also work to your favor if the trade moves against you. Imo, it makes a lot more sense to trade the movements in the major indexes as opposed to grossly overpriced options and spreads in the front month contracts for other "hot stocks". Sure playing stocks as opposed to indexes can lead to bigger gains, but can you afford to lose in this market?
Good luck!
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