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May 24th Daily Market Comments

Political events continue to keep the market in a sideways mode. This lack of direction for the overall market continues to put more emphasis on each individual stock chart. Continue to stay predominantly long but be aware that world political decisions will be adding to specific sectors or detracting from specific sectors. For example, today the defense stocks and gold stocks are reacting to the positive side. Utilize the candlestick charts to pinpoint which sectors are getting good strength. … [Read More...]

Trending Stocks: CTRP, RL

Ctrip (CTRP) Chart for CTRP Over the next 13 weeks, Ctrip has on average historically risen by 11.5% based on the past 14 years of stock performance. Ctrip has risen higher by an average 11.5% in 9 of those 14 years over the subsequent 13 week period, corresponding to a historical probability of 64% The holding period that leads to the greatest annualized return for Ctrip, based on historical prices, is 1 week. Should Ctrip stock move in the future similarly to its average historical movement over this duration, an annualized return of 186% could result. Ralph Lauren (RL) Chart for RL Over the next 13 weeks, Ralph Lauren has on average historically risen by 5.4% based on the past 20 years of stock performance. Ralph Lauren has risen higher by an average 5.4% in 11 of those 20 years over the subsequent 13 week period, corresponding to a historical probability of 55% The holding period that leads to the greatest annualized return for Ralph Lauren, based on historical prices, is 13 weeks. Should Ralph Lauren stock move in the future similarly to its average historical movement over this duration, an annualized return of 22% could result. … [Read More...]

May 23rd Daily Market Comments

After opening lower Today, the market indexes are currently trading above where they opened. This reveals that although the markets are lower, there is still buying occurring at these levels. The T-line remains a relevant factor. The indexes are hovering at the T-line level. It will be important to see whether the T-line holds as a support today. Stay predominantly long but a close below the T-line at the end of the day would warrant taking some long positions out of the portfolio.   … [Read More...]

May 22nd Daily Market Comments

Today's lack of direction in the markets are not changing the J-hook pattern potential in the indexes. Although the Dow is trading lower, the transportation index is trading higher, indicating no major change of investor sentiment. The lack of any change of investor sentiment allows for strong candlestick chart patterns to continue to work. … [Read More...]

Options Pricing: It’s Like Buying in Bulk

Options Pricing: It’s Like Buying in Bulk By Bill Johnson One of the benefits of options is that we get lots of choices. We have lots of expiration dates, strikes, and strategies. Unfortunately, having so many choices also causes confusion among traders. Which expiration and which strike should you choose? To answer that, it helps to understand some basics of options pricing. Most traders believe that at-the-money option prices follow a straight-line path. For instance, if a one- month option costs $1, you’d think a two-month option must cost $2 – twice the time, twice the money. It seems to make sense, but it’s wrong. Not understanding how options are priced leads traders to make bad strategy decisions. It’s counterintuitive, but here’s the way it works: If a one-month option costs $1, it would take a four-month option before you’d see it trading for $2. In other words, it takes four times the amount of time to double an option’s price. The reason is that options prices are proportional to volatility, which is proportional to the square root of time. If you increase time by a factor of four, the option’s price increases by the square root of four, or a factor of two. If you can increase in option’s time to expiration nine-fold, the option’s price triples. The point to understand is that when you’re buying long-dated options, it’s like buying things in bulk. Yes, you’ll pay more for the option, but the price per day is greatly reduced. For instance, the four-month option trading for $2 costs about 1.7 cents per day, but the one-month option trading for $1 costs about 3.3 cents per day – twice as much. If you’re buying options, you should lean toward buying longer-dated options as the amount of time value you’re spending per day is greatly reduced. On the other hand, option sellers should lean toward selling shorter-term options multiple times rather than selling one longer-dated option. For example, if you’re using a covered call strategy, you may decide … [Read More...]