The Options Report

What Would Yogi Berra Do?

Ken Trester — Thu, 17 Jul 2008 14:46:43 GMT

If you don’t know where you’re going, you’ll end up some place else.” -- Yogi Berra

Ha! I love Yogi.

How can anyone be so right and make you scratch your head at the same time? Yogi could have said, “You need to know where you’re going,” instead. But had Yogi been so direct, his line just wouldn’t have had the same punch.

In mid March I wrote, “Topic A in the financial press is the continuing market collapse. When will it hit bottom; what will the bottom number be; when will it be safe to buy stocks again?” Now that line doesn’t nearly have the same cache as Yogi’s does it? No it’s a little more professorial. Well, I’m no Yogi.

Here we are in mid-July, four months later and Topic A remains the continuing market collapse. Question number one remains when will be safe to buy stocks again?

Over the months I’ve reminded you that us stock options players can make money on either side. We don’t care about the market direction. If you look at my posted track record you’ll see that advice in real world action:

8 of our last 10 positions made money; that’s an 80% winning ratio. All 8 winners were puts. One loser was a call; the other a put.

If you are interested in more information about my newsletter, Complete Options, go to http://www.completeoptions.com/COR-II-WEB-02-20-08.htm

While I’m happy as a clam making money for you I am concerned about two things. This sinking market is worrisome. Sure we’re making money but it’s like the over all market – and the country – is forced withstand this Chinese water torture. This is not good.

Second and on a personal level the market will turn around and some day I’ll be writing that 8 of out past 10 winners were calls; not puts.

We need to know where we are going and when we are going there to keep taking profits.

How will we know when the market truly turns? How will we know when the Bear isn’t just giving us just a head fake?

First you’ll see my recommended calls increase in frequency. And then there will be this:

Volume.

The volume will noticeably change.

Determining when the market hits bottom or a temporary bottom is to measure the amount of panic in the market. One classic line is “only buy when there is blood in the

streets” or when in the pit of the stomach, you feel the world is coming to an end.

This is, indeed, the time to buy. One easy way to measure such panic is to look at two indexes, the CBOE Volatility Index (VIX) and the Nasdaq Volatility Index (VNX).

The CBOE Volatility Index measures the implied volatility of the puts and calls of the S&P 100 Index (OEX). The Nasdaq Volatility Index measures the implied volatility of puts and calls of the Nasdaq 100 Index. The higher the implied volatility, the more expensive the options.

The implied volatility getting extremely high is a sign of panic in the market. Sometimes it takes a few weeks to reach that bottom, but when the VIX and VNX are extremely high, it is time to start entering bullish strategies.

And we will.

One warning, however, the VIX and VNX must be at extremes. I’ll keep my eye that; you don’t need to.

Sorry about that technical jargon. As I said I’m no Yogi.

You’ve hired me and it’s my job to make trading options profitable. 8 out of 10 winning options trades does that nicely.

I’m going to take care of the heavy lifting giving my best recommendations weekly.

Here’s how Yogi would advise you… "When you get to a fork in the road, take it."

That’s all I meant to say – when the market changes direction I’ll get you there.

For more information about my newsletter, Complete Options, go to http://www.completeoptions.com/COR-II-WEB-02-20-08.htm

Why Options Now?

Ken Trester — Wed, 16 Jul 2008 14:12:18 GMT

The past year or so has been very instructive even for veteran investors.

Sharp, sudden rallies are followed by equally sharp, sudden collapses. I will not lie to you – this is a tough market.

But the lesson is clear -- it pays to have exposure to the market at all times. How else can you make money?

Trading stocks right now is not easy and the risk of losing and losing big time has put a lot of traders on the side line.

But as a Complete Options subscriber (http://www.completeoptions.com/COR-II-WEB-02-20-08.htm ) you could be in exactly the right place.

Options are excellent speculative vehicles which require relatively little financial exposure and still offer big time profit potential. Cheap options can give you outstanding bang for your buck or good downside insurance when you buy puts.

The Best News

Right now is the best time to use options as a replacement for purchasing stocks and you’ll get far more leverage and far less risk as you participate in the stock market.

This strategy protects you from the risk of a crash in the market, as long as you don't go overboard.

To use options as surrogates for stocks you must usually purchase in-the-money calls (the stock price is above the strike price) that have minimal time value. But this is a mistake since in-the-money options are expensive.

When trading with more expensive stocks you will have to pay from 5 to 10 points ($500 to $1,000) for in-the-money options. The drawback to this is that if the stock has a sharp correction much of your premium will collapse. You’ll lose big time.

To protect yourself somewhat from this you can buy an out-of-the-money LEAP, which is a long-term option that can last for up to two and a half years. This large amount of time helps the option premium hold up better during a stock decline.

But a LEAP is more expensive than a shorter-term option. So when you buy a LEAP it is very important to set a mental stop loss on the underlying stock.

Build Your Own Portfolio

If your stock buying program has been on the sidelines you might consider using LEAPs as a substitute.

For example as I am writing GE is trading at $27.48; 500 shares would cost you $13,740.00 a lot of money to risk in this market.

Take a look at what a GE LEAP option can do. You can control 500 shares of a January 2010 30 GE call for just over $1,300. The most you can lose is $1,300 and you have control of GE for another 17 months.

I ask you what is the safer and more prudent trade in this market -- $13,000 of stock or a $1,300 LEAP option?

I could list trade after trade like GE and in virtually every case you’d be better off trading LEAPs if you want market participation right now.

How to Protect Your LEAP Profits

As I said above you need to use a stop loss as we do here at Complete Options. You need to set a mental stop loss and if the stock closes below this stop loss, sell the LEAP.

This will usually protect you from losing much or your entire option premium if the stock declines. Letting time and money slip away is a major sin of option buyers.

This stop loss should be a "trailing stop." As the option increases in price due to a rise in the stock you keep moving the stop loss up so that it is never more than 5 or 10 percent below the stock price.

But if the stock price declines, you do not adjust the trailing stop. This way, if the stock declines from its high you will be able to sell the LEAP in plenty of time to preserve most of your profit.

Also, LEAPs tend to lose their value quickly in the last six months before expiration. So if you own a LEAP that is out of the money when it moves into its final six months of life, you should strongly consider closing your position.

Another key to buying LEAPs and in-the-money options is to make sure that you are paying a fair price. These options cost more than short-term options, so your risk in the event of a price collapse is greater. The less money you have on the table, the less your risk will be.

To sum up, options can be excellent surrogates for stocks. But be sure to pay a fair price for these more expensive options and use a stop loss to protect your premium in case the stock declines.

Need options trading help; need options profits? Go to: http://www.completeoptions.com/COR-II-WEB-02-20-08.htm

How Stock Options Can Save Your Portfolio

Ken Trester — Tue, 06 May 2008 20:22:21 GMT

There are more ways to make and save money with options than you can shake a stick at... here what I mean....

Do you have fire insurance on your house... accident insurance on your car... health insurance?

I'm certain the answer is "yes" because you want to protect your most valuable properties from catastrophic loss. On the other hand I bet you do not have insurance on your stock portfolio.

Since last fall, stock investors have lost tens of thousands and more to the market decline. And it didn't need to happen. The good news is that you can STILL protect your stock portfolio using a little stock option insurance.

Save Your Stock Portfolio from a Fire

The easiest way to protect a stock portfolio from a market decline is to buy put options.

Over the years in the many lectures and presentations that I have made, I have warned investors always to hold some puts in their portfolio in order to protect their stock positions and mutual funds from unexpected market declines.

To underscore my message in my talks I've always used the bear market of 1973-1974, where many large mutual funds lost 80% of their value. Those warnings did not seem very believable to many investors until the bear market of 2000-2002 when many Nasdaq stocks dropped 90% in value and the disastrous attacks of September 11, 2001 sent the market into a nose dive.

This Market is in Chaos

Over the last few weeks the market has settled into a kind of trading range - but frankly all of us are worried that there is another shoe to drop and that could rob more from our stocks.

Because of unpredictable variables, described in chaos theory, we never know what other event could send the market or individual stocks, such as the airlines, into a tailspin.

Another terrorist attack, possibly on a greater magnitude, or a gigantic earthquake in a population center such as Southern California could see the market lose a quarter or more of its value.

Such events are not only possible but always looming just off the horizon. Although we hope never to see such events in our future, you should be prepared for uncertainties.

Consequently, a put portfolio is not only a good speculation, but also a good insurance policy to offset some of the risk of your portfolio.

As I said, you have insurance for your home, health, and your car. Why not buy insurance for your portfolio that took a lifetime to develop?

The Best Way to Self Insure

Most people have a tendency to buy too much insurance. You buy insurance for a potential disaster. You don't need total protection. You just need a safety net.

Buying cheap out-of-the-money puts can provide that net. Therefore, your put insurance will not be a big investment, just a very small percentage of your portfolio.

Nevertheless, when buying these puts, make sure they are undervalued and have a decent probability of profit.

Using puts is a rare opportunity where your insurance policy could actually generate a profit even if you don't see a disastrous decline.

Which Puts to Buy?

It's impossible for me to recommend the correct puts to each of you but here's how to do it on your own...

Puts used for your personal portfolio do not have to be the same as the stocks you own. For example if you own Ford and cannot find a good value General Motors puts will work just about as well. As a result, you can be a true bargain hunter.

You can also buy puts on the stocks you own, especially when a stock is vulnerable to a decline and you do not wish to sell the stock. Again, as I do with my Fast Options weekly recommendations, try to buy cheap out-of-the-money puts. They won't give full protection but will act like a deductible insurance policy, and for a small price you get a lot of reassurance.

Buying such puts may not be a good investment, but it will be when the market is in the depths of decline where you are ready to panic out of the market right at the wrong time.

A put portfolio will give you the reassurance that will enable you not only to sleep at night, but also to avoid panicking and selling your stock when you shouldn't, usually at a market bottom.

Newsletter Recommendations Closed for 2 and 3 Week Profits

Last Friday the Complete Option Report closed five profitable positions...

U.S. Natural Gas Fund Jul Call debit spread, 35% profit
Sysco Corp Aug Call debit spread, 44% profit

And these... additional Power Options closed May 2 after holding for three weeks

Corinthian Colleges Aug Call, 90% profit
Broadcom Aug Call, 136% profit
Fuel-tech Jun Call, 41% profit

You can get great and specific trading advice from Ken Trester. He's never had a losing year.

To subscribe at a discounted price click here: http://www.completeoptions.com/save_071214/COR-II-WEB-02-20-08.htm

Covered Call Strategies For The Nimble Trader

Ken Trester — Mon, 24 Mar 2008 20:20:00 GMT

Many of you are losing big time in your stock portfolio -- but I have good news for you...

I am going to show you two option tactics that can help you generate more money (up to 12% more) from your stocks, prevent some losses, and help you sleep better during this market turmoil.

There are easy to implement and well worth your effort...

The methods that I outline below use covered calls to produce much larger returns on the stock you own. Selling covered calls is one of the most basic and also the safest of all option strategies. You can generate additional income from stocks that you own, and this income helps hedge against the risk of owning the stocks. But in order to write a covered calls, you must first own at least 100 shares of the underlying stock.

Naturally, in return for the possible larger gains you will take on more risk. If you are comfortable with that, and consider yourself a nimble trader, here are a couple twists you can apply:

"Naked" Calls

One twist is to write the call without owning 100 shares of the underlying stock. In other words, write an uncovered, or "naked," call. At the same time place a contingent buy order to purchase the stock at the strike price of the call. (The contingent buy order is a necessary ingredient and not all brokerages allow this type of trade; so be sure yours does before you try this.)

A stock theoretically can rise to infinity, which makes naked call writing a risky venture. If you are assigned a naked call you may be required to purchase the stock for substantially more than what your covered call allows you to sell it for. But by using a contingent buy order, should the stock rise above the strike price you will automatically purchase enough shares of the stock to make your written call "covered."

A contingent buy order requires that you have the funds readily available to purchase the stock if you are required to do so. So in that regard the contingent buy order operates like a margin account, with one vital difference. If necessary, you will have to pony up money to buy a stock that is moving in your direction, not against you.

This tactic also has another advantage. If the stock moves lower you will not have invested money in a declining stock. You will simply have pocketed the income from writing the call.

The second twist is to pay less for the shares of stock. You can do this by buying the stock on margin.

Using Leverage

Buying stock on margin involves taking a loan from your broker, then using the loan to purchase stock. Currently it is possible to borrow up to 50% of the cost of the stock. This in turn doubles your percentage return from writing covered calls against the stock.

For example, a covered call that generates a 6% return against the shares of a stock that are fully paid for would generate a 12% return against shares of a stock that were financed with a 50% margin. This return percentage is reduced by the interest rate of your margin loan.

Be aware, though, that buying stocks on margin is risky. Primarily, if the stock goes down, you are losing money at a much faster rate than you would had you paid full price for the shares. Not only are your stock shares losing value, but your stock shares serve as collateral for your margin loan, so the amount necessary to repay your loan is increasing.

And while your covered call may not be in danger of being assigned, you will be more likely to receive a margin call from your broker, which could obligate you to close the position at an inopportune time.

Contingent buy orders and buying stock on margin are aggressive ways to use covered call writing to your advantage. If you are a nimble trader they are worth looking into. But if you value safety first, stick to traditional covered call writing.

Special Offer: The Complete Option Report

The Complete Option Report helps you make money in any market by trading with the market using its strengths and its weaknesses to make regularly profitable options trades.

If you you'd like to open a discounted subscription (only $49) to Ken Trester's Complete Option Report click here: http://www.completeoptions.com/COR-II-WEB-02-20-08.htm

Sorry Ken doesn't give you covered call recommendations but you'll get a rich assortment of recommendations. It is definately worth a look.

The Trend Is Your Friend

Ken Trester — Tue, 11 Mar 2008 17:33:23 GMT

If there is one market adage that has proven itself a huge money maker over the years, it is this: "The trend is your friend."

Simple enough advice. Buy calls when the market is trending up, puts in a down market.

But -- and I mean a really big BUT -- most investors cannot bring themselves to believe that you can invest profitably in a down market.

Millions of investors could make hundreds of millions of dollars simply by heeding the direction of the trend even if it is down. But most investors won't invest in a down trend.

We are options traders and we can – unlike any other group of traders – make money when the market goes up – down – even sideways.

I don't care if the market goes down because I can trade puts – you can as well and you SHOULD as well.

Most investors are familiar with call options, because they are the easiest to understand. A call is simply a substitute for buying a stock. If the stock price rises, chances are the price of the call option will also rise.

That is simple, straightforward and frankly what appeals to most traders. Why? Because we all believe – practically from birth -- that the only way to make money is for a stock to go up in price.

It's in our trading DNA.

It's hard to believe that you can make money when a stock sinks.

You can and I am here to tell you that historically I've made more money, a lot faster with puts than call options.

This Week's Confession

My newsletter subscribers have not made a single dime in call options (the up market bet) since late January. Not a penny! But so what?

In the same time we've had 9 profitable put option trades. On March 4th we closed a Hecla Mining put for a 76%. On March 8th we also closed a Louisiana-Pacific Put for a 66% profit, and a Gannett Put for a 76% profit.

That's real money made (real time percentage gains) in 3 weeks or less – if I annualized the profits it will be in a word -- "Obscene!"

As I said that the outset you've got to follow the trend. Right now you must trade puts to profit.

Look, we have a huge advantage over stock traders. As the market sinks they lose, as the market sinks we can win!

You can start wining this week. I publish my next Ultimate Options Report on Friday March 15th and it will have my hottest recommendations. I urge you to get it. Ultimate Options is strictly limited to only 825 traders world wide.

Right now you can get a Charter Subscription, save $390 plus receive 13 online options reports and see Ken's 54-minute Option Seminar.

For more info click here: http://www.ultimateoptionstrategies.com/UOS-II-03-11-08.htm

How to Trade with the Trend

I've been kicking around the options market since 1973 and I know that most investors are not as familiar with the call options opposite, a put option. And for this reason, they hesitate to use puts to their full advantage.

But here is all you need to know -- a put option PROFITS when a stock price falls.

In fact, it is the existence of put options that makes options an "all seasons investment." Because regardless of whether the market is rising or falling, you can use options to profit from a move in either direction.

Now while it's smart to follow the trend you need a balanced approach. I've told you time and again I can never be dead certain where the market will be from week to week. No one can. And so

I'd never bet the farm on just calls or just puts.

Follow the trend yes; blindly follow it no.

No matter what current market conditions are, it is always a good idea to be ready for a sudden pullback or jump forward.

In today's market that is more important than ever. Computer-driven trading and push-button money transfers can cause sudden market falls almost overnight. And even if the market itself doesn't collapse, individual stocks do almost every day.

Professionals hedge their stock portfolios by buying put options and calls. It night be 80% one way and 20% the other depending on the trend.

And of course heed my most basic advice: buy underpriced put options on stocks that fall further than the market during a decline. The best place to find these options is in my newest publication, Ultimate Options.

I'm doing all the heavy lifting in Ultimate Options giving you great potential trades every Friday!

If you'd like to jump aboard our new weekly trading report Ultimate Options and save an instant $390 Click here http://www.ultimateoptionstrategies.com/UOS-II-03-11-08.htm

You can save if you act quickly plus get several important bonuses. This publication is limited to only 825 traders and we've already sold a bunch.

Closing Thoughts

When you buy puts, be sure to "time-diversify" by always owning puts that expire in every month of the year. These puts may pay off even if the market or your stocks don't fall. So not only will you be buying portfolio insurance but you may also develop an entire new profit center.

Buying a put option is as easy as buying a call option. And your risk is the same -- you can only lose what you pay for the option, nothing more.

The drawback to buying a put option is the same as with buying a call option -- it has a limited life, and it might expire before the stock makes the move you are anticipating. But stay tuned and I'll get you out with a minimal loss or more often than not a profit.

The Market

Our indicators are giving bearish readings. Stocks managed to ignore one of the most historically bullish weeks of the year and instead closed below key support levels. We have been watching these support levels for quite some time and have been warning that a break below them could signal big trouble ahead. Now that the break has happened we believe a major sell-off could be around the corner.

How great could the damage become? The next major chart support for the Dow Industrials is at 10,800. A fall that low would represent more than a 20% drop from last year's highs. Keep in mind that many investors consider a 20% decline to be the definition of a bear market. So a decline of that magnitude could trigger even more selling as long-time bulls finally throw in the towel.

There is precedent for this kind of action. In 1987 the major stock indexes fell 20% from their highs during the months leading up to the October crash. Only after that 20% level was exceeded did the real panic selling begin. Also, in 1987 the dollar was screaming lower, similar to what it is happening today.

A more recent comparison is the year 2000. In January that year stocks began a slide that would eventually take the Dow Industrials more than 30% lower before they bottomed out more than two years later. A similar fall from last year's highs points to a landing at around 9900. If it falls that low, the Dow has very good support at that level, which it was busy establishing during almost all of 2004.

The year 2000 was marked by almost the entire technology sector facing dire economic straits. It was also an election year in which a new U.S. president was elected. In 2008 almost the entire financial sector is facing dire economic straits, and it is also an election year in which a new president will be elected. All of this adds up to some eerie similarities to years that did not have good stock market outcomes. Options players should continue to focus on establishing bearish positions by buying puts on market rallies.

Thanks for stopping by and to get more trading info about Ultimate Options click here http://www.ultimateoptionstrategies.com/UOS-II-03-11-08.htm

Nine Principles For Successful Options Trading

Ken Trester — Tue, 04 Mar 2008 21:32:20 GMT

This week I'm going to give you nine critical principles - guidelines if you like -- I use in my own trading.

As you may know I've been trading since 1973 and these nine principles have helped me more than you can imagine...

You see to be a really successful options trader you need to know the "nuances" of trading.

My nine principles are not hard but it's like anything else - the devil is in the details.

Before I get to my nine principles, I'd like to point out my winning trades this week - I'm proud of them and I suspect my subscribers are smiling as well. I would also like to take this opportunity to spotlight a technique that I often use in combination with my nine principles.

First and foremost my recommendations are about hitting home runs (making the really big profits in just a few days) and there is one technique that I use frequently: buying extremely cheap options. Some call this technique "bottom fishing."

The following profits were all earned using this technique...

I closed the Hecla Mining short-term Power Option for a 76% profit and also a Thornburg Mortgage Call debit spread for a 33% profit.
Three other Power Options were closed for three-week profits. A Nortel Networks Jun Put was closed for a 63% profit, a Rigel Pharmaceuticals Jun Put was closed for a 40% profit, and a Broadcom My Put was closed for a 29% profit.

Not bad - all the calls and puts were opened and closed in 3 weeks or less.

I was just reviewing my buy prices in my newsletters so far this year. The lowest price was just $58.00 per contract; highest was $270.00.

That's cheap.

Obviously that means you can control 100 shares of stock for as little as $58. I don't know about in your neck of the woods but my last parking ticket cost more than that.

The biggest potential loss on that should have been around $29 - but in fact I "hit a double" - earning 21% in 21 days. Not too shabby. And when there are losses, the key is taking small losses while racking up home runs (and some doubles and triples) on cheap options. Cheap options have the potential for the very biggest of the big gains. It just stands to reason - the smaller the investment, the bigger potential percentage gain.

Now, let's cover the nine principles of option trading that should improve your overall profits.

If you are new, be patient. Don't invest everything right away. Decide how much you want to risk in options during the next twelve months and spread your purchases over that time frame.
Diversify. Take at least two or three positions and try to always own both calls and puts. With the recent swings in the market, playing both sides will improve your chances in the long run. Don't forget this.
Minimize your risk. Pay as little as possible for each option and always be ready to cut your losses. Part of my job is to help find the cheap options and then get you out with a profit - FAST!
Plan before you play. If you do not have a game plan that tells you when to take profits and when to cut losses you will have a very difficult time making a profit. I can help lay out a game plan for you with every options play.
Don't be greedy. The downfall of 90% of all options investors is greed. Putting all your money down on a "sure thing" is a certain recipe for disaster. I've been trading since 1973 - there are no sure things; never bet the farm.
Maximize your leverage. Try to buy options that will increase in value by at least 100%. Buying cheap options is the first step in this strategy. I'm always on the prowl for 100% winners - sometimes I take less. But any profit in 3 weeks is a dandy profit in my book.
Buy options on high volatility stocks. You have a limited amount of time to work with. Your best plays are on volatile stocks.
In general, buy out-of-the-money options. These options normally have lower prices, and less risk. I can help you make money and point out the best possible risk reward picture.
Be patient. This is worth repeating. Contrary to common wisdom, buying speculative options is not a game that requires action every day. Successful options buying requires patience and selectivity. It is the only way to win this game.

If you follow these principles, you will increase your chances of making profits in the options game.

Now to the latest market analysis...

My indicators are giving neutral to bearish readings. This week is historically one of the most bullish weeks of the year for stocks so we could see a bounce following last week's sell-off. However, major investors continue to use rallies as chances to sell stocks and lower their exposure, especially in the financial sector. As long as financial stocks remain weak, the overall market will have a hard time sustaining rallies.

The past few months have been very instructive as to the power of stock charts. We've often referred to the bearish moving average crosses that all the major indexes have made. This is the primary sign of a bear market and is the main reason many institutions continue to sell stocks into rallies.

There are also a couple of secondary chart indicators that have been very good at predicting when the selling will begin and when it might end. For example, the rally early last week took the Dow Industrials up to their 50-day moving average. But once the index reached that level, the selling began.

Another, more subtle trend has arisen recently as a support level, and that is the Dow's long-term growth trendline. This trendline proved to be the low in 2003 when the previous bear market came to an end. And it has proven to be a support level over the first few weeks of 2008. The positive aspect of this is that this growth trendline promotes a "higher low" chart pattern, which of course is half of the "higher lows, higher highs" formula that investors need to see before they believe that the bear market has ended.

Currently the Dow is once again perched right at its growth trendline. If that fails as support, 12,000 is the next test. And if that fails... We've stated numerous times that a fall to 11,000 is the likely next stop. Options players should continue to focus on bearish positions and try to buy puts on mini-rallies so you get the best price possible.

Up Market? Down Market? It Makes No Difference to Options Traders... Find out more on how I can help you with a subscription to The Complete Option Report.

The Options Game

Ken Trester — Mon, 25 Feb 2008 20:40:24 GMT

I love the options game because it is all about the preciseness of statistical science.

Options are not about earnings... not new product development... not cash flow... not PE ratio... not dividends or yields as stocks are.

Frankly all of those fundamentals are subject to intellectual argument. And that uncertainly obviously leads to uncertainty about the true value and price of a stock.

Options are a game apart. Options can be dissected by math; good old fashion unarguable math. The number "2" will always be "2; "18" will always be "18."

In the beginning stages of my weekly research I look for a few numbers that inevitably lead me to the recommendations I make weekly recommendations that profited like this last Friday:

Amylin Pharmaceuticals Put for a 122% profit
Capital One Financial Put for a 100% profit

But there is another difference -- unlike a stock which in theory you can own forever -- options are more like renting a house than actually owning a house.

Now before I continue detailing how I make my option trading decisions I have a major announcement.

Soon we will introduce a new trading service -- called Ultimate Options -- which will quite simply be unique and so potentially profitable we will be forced to limit the number of subscribers to about 800 world wide.

I know this is an unusual step and will leave many of you out but we have no choice. Why am I doing this?

The options market is relatively small and cannot handle a large number of investors making the same trade.

The stock market can easily absorb millions of investors because the average stock volume is in millions even tens of millions every day. But the options market is much smaller.

You'll only see only hundreds of perhaps a few thousand traded daily. Too many traders chasing the option will upset the apple cart

So no matter how good a trading system - too many investors employing the same tactics, at the same time will ruin our winning scientific formula.

Perhaps a better way to put it is that no matter how good the sailors - if they all lean in the same direction at the same time they will capsize the boat.

Volume is the fatal flaw in options trading. To solve that built in problem we have established a limit of 825 traders world wide to Ultimate Option Strategies.

Obviously we are limiting our income but at the same time we believe 825 happy traders will stay with us year after year making Ultimate Options also a long term success.

So please understand once we have reached our limit we will close the door and put you on a waiting list. No exceptions. NONE!

More about Ultimate Options in a few days...

Now Back to My Analysis...

One of the aspects of an option I look at is how much time is left before the option expires - obviously the more time left before expiration; the more the option will cost.

I also look at how far the stock is currently trading from the option's strike price. Again the closer it is to the strike price the more the option will cost.

I also look at the stock's volatility which is basically how fast and how much the underlying stock moves up and down. In options this volatility is rendered as a scientific number.

Now putting all of this together and selecting a few trades for you from an options universe that reaches into hundreds of thousands of potential trades - is precisely what I do for a living and frankly it's not all that easy.

It's taken me decades to perfect.

Now I know many of you often are paralyzed by information.

Let's Take a Breather - Option Traders Have the Upper Hand

This is a tough market to figure right now with inflation... recession fears... the national election... the sub-prime mess. That's exactly what has lead to 300 point spikes only to be followed by 300 point collapses.

The mathematical nature of the options game in combination with the unpredictable nature of stocks can create a large trap for the option trader. Many traders suffer from information overload.

They cannot decipher the good information from the bad information, and they get lost in the trees.

Many investors overanalyze to the point that they are unable to make a decision. Many technical analysts get lost in the jungle of statistics of the price charts. Again that is why there are so many different opinions about the same stock.

Our Salvation: My 60% Rule

Try to keep things simple. Stand on the sidelines instead of in the middle of the jungle. Take a lot of the information with a grain of salt.

Remember my 60% rule which assumes that I (yes, me Ken Trester) will only be right 60% of the time no matter how I feel about a position. Yeah I know many gurus say they are right 90% of the time but frankly that is bull.

The 60% rule is our salvation since it forces me to design option strategies that will pay off even if I am only right 60% or less of the time.

And more often than not those 60% winners come at you in 3 weeks or less and in double and triple digits.

When it comes to option trader, decide on the important input and ignore the other details.

Don't get lost when doing your analysis. Besides I've down the heavy lifting by the time you get this report and my recommendations.

Also, avoid using too many analysis programs and too many option advisory services. Too much information can be as dangerous as too little.

Try to keep it simple, and try to develop a simple consistent methodology that suits your personality and style. Of course, a simple methodology takes practice as you get comfortable with the type of trades and analysis that you find successful.

That's it for now but please be on the watch for our newest publication Ultimate Options. It will be limited to 825 option traders. That's it. Once we fill up we will close the doors.

"Not Good" for the Bulls

Ken Trester — Tue, 19 Feb 2008 17:52:42 GMT

Our indicators are giving bearish readings which was born out by Tuesday's action when the Market was up over 100 points only top close down 11.

In two words -- "Not Good" for the bulls.

For option players like us, the best course of action continues to be to try to buy puts on rallies.

While the primary trend might be bearish, stocks have been very volatile to both the upside and downside, so simply owning put options isn't enough. You must still strive to pay the lowest price that you can to buy the puts.

Once again last week Complete Option Report subscribers took a trip to the bank with more profits when four trades, expired Friday for full 100% profits.

As a regular reader of this Report you may wonder how we profit while most of the market continues to struggle.

How We Profit

We profit almost weekly by finding undervalued options.

That is the cornerstone of making profits when you speculate with options.

But just as important as selecting the right option to buy and paying the right price is knowing when and how to take profits.

Many option buyers lose not because they take the wrong positions, but because they fail to take profits properly.

To make the biggest potential profit your first objective is to protect profits, and your second objective is to hit home runs. Most important, when your option begins to profit you must be ready to act.

Ken's newsletter The Complete Option Report gives you specific time tested entry and exit points so you can trade with scientific disciple. Click here to try the twice weekly report...

How to Sell

I have found that the best way to do this is to know exactly what you will do with a position when the option hits a specific price. Deciding this in advance, and sticking to your decision when the time comes, removes a lot of emotion from your decision making. When you buy an option, you should decide in advance what your target price for the option will be. We always give you our target prices when we recommend options to buy in The Complete Option Report.

If the option hits the target price, sell half of your position. This takes your original money off the table. Capital preservation is paramount when you speculate with options.

Then let the rest of your position ride for possible future gains, using a 5% trailing stop on the underlying stock. A trailing stop can be a "mental" stop, though more and more brokerages are allowing this to be done automatically. The trailing stop adjusts when the stock moves in your direction, and stays the same when the stock moves against you.

For example, when a Halliburton LEAP call option we recommended hit its target price, we advised subscribers to sell half their position. Then if the stock kept rising, they would hold the option and adjust the trailing stop higher so that it would still be 5% under the current stock price. But if the stock fell, they would keep the trailing stop the same.

The process is reversed for a put option. If the stock continues to fall, keep lowering the trailing stop. But if the stock rises, keep the trailing stop the same.

Another key for taking profits -- if your option is in the money (goes past the strike price) and enters its last week before expiration, close the entire position and take profits.

Don't wait for it to expire.

Taking half of your profits at the target price serves two beneficial purposes. One, it forces you to take some money off the table, protecting you from a sudden reversal in the stock price. And two, it leaves money on the table for possible future gains.

As I said above The Complete Option Portfolio is currently biased with puts. I suggest you take advantage of this volatility and try The Complete Option Report.

Protecting profits and preserving capital is critical when you buy options.

As important as taking profits is cutting losses. Losses are part of the game, and if you don't take them and move on you will soon be out of the game.

There are two ways to cut losses. One is by setting a stop loss on the underlying stock. If the stock closes below (for a call option) or above (for a put option) its stop loss, close the option position the next day. Another way to cut losses is to use the option price. If an option falls in value by 50% after you buy it, sell it and close your position.

The Bottom Line

We can't stress this enough -- if you do not cut your losses, you will not last as an options player.

That, in a nutshell, is how we maximize profits with options. It is a system that takes profits when they are available, and cuts losses when necessary.

Most important, it removes emotions from your decision making. Follow this system and you'll have your best shot at real success when you buy options for speculation.