Options Trading And The New Normal - PowerPoint PPT Presentation

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Options Trading And The New Normal

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Options trading can make the new normal of lower stock returns quite a bit more rewarding. – PowerPoint PPT presentation

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Title: Options Trading And The New Normal


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  • OPTIONS TRADING

Options Trading And The New Normal
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Welcome to Options Trading Research Your premier
site for news and information on Profitable
Options Trading. For more info on Options Trading
visit our website www.OptionsTradingResearch.com
3
  • Get Your Free Report For The Best Options To Buy
    For 2016!
  • Well tell you about this
  • Special Offer
  • at the end of the video!

4
  • Hi, My name is Steve and Im with Options Trading
    Research, today were reviewing our recently
    published article

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  • Options Trading And The New Normal

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  • As we approach the end of the year, we can start
    to piece together what kind of year its been for
    US stocks. There are basically two different
    stories to tell in 2015. There was the August
    correction and subsequent rebound.

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  • And, theres been a whole bunch of range-bound
    trading. The result so far is the SP 500 is up
    about 3 on the year. Realistically, were
    looking at a year-end gain of somewhere between
    flat and 5.

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  • Thats nothing to write home about although its
    certainly better than losing money.
  • Heres the thing

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  • Some analysts are calling these minimal returns
    on stocks the new normal. They believe this is
    what we can expect from stocks for the
    foreseeable future.

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  • Lets take a closer look at why lower equity
    returns may be the new normal and how we can
    profit from this environment.

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  • So where does options trading come in with the
    new normal?

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  • Ill get back to that in a minute. First take a
    look at this chart of the SP 500 SPX.

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  • The chart of the SP 500 shows exactly what I was
    talking about earlier. The index has mostly been
    trading in a fairly consistent range. Of course,
    we had the big August selloff with the roughly 2
    month recovery.

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  • But, it looks like were right back to the range
    from earlier in the year. So why may this be the
    new normal for stocks? There are several reasons
    for this, but lets focus on just a few of them.

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  • First and foremost, were likely entering a
    period of rising interest rates. The pace of the
    rate increases may be slow, but the Fed has made
    it clear it wants to start increasing rates.
    That will provide a headwind to most industries.

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  • Second, while the US economy is doing okay, the
    rest of the world is still pretty much
    struggling. As long as international demand is
    stagnating, theres only so much the US and its
    companies can grow.

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  • Finally, the US economy itself is still a mixed
    bag. While the economy has certainly improved,
    there are still some sectors that are lagging
    well behind. For instance, US manufacturing is
    still a mess.

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  • All these variables mean it isnt likely were
    going to see a major bull market for stocks
    anytime soon. On the other hand, theres no
    reason to believe a recession is around the
    corner either.

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  • So what are the benefits to using options in this
    scenario?

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  • There may be no better scenario to succeed with
    options than this type of environment. Options
    can seriously enhance portfolio returns when
    stocks are trading sideways.

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  • For instance, this is likely an ideal time for
    using covered calls. Keep in mind, a covered call
    trade is selling a call against a long stock
    position. The trade is maximized if the stock
    price is right at the short call strike upon
    expiration.

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  • For a refresher on covered calls basics, follow
    the link. Not only can you use a standard
    buy/write strategy (buying stock and selling
    calls against it at the same time), but you can
    also use an overwrite strategy.

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  • Thats when you write calls against your existing
    stock positions to help enhance portfolio
    returns. For those of you willing to take on a
    bit more risk in return for higher yields, you
    could also consider writing naked puts.

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  • If you strongly believe a certain stock or index
    has a floor, it could be a great time to sell
    puts against long stock. Whats more, if you
    dont own the stock, you can sell puts at a level
    you dont mind getting long the shares.

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  • Youll either earn a steady yield on the
    position, or youll get long a stock you dont
    mind owning anyways. These are just a few of the
    more basic strategies you can use options for in
    the new normal environment.

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  • There are plenty more viable options strategies
    for those interesting in delving even deeper. It
    just goes to show how valuable options trading
    can be for those who take the time to learn.

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29
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