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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (95405)	3/17/2009 8:27:43 AM
From: ajtj99	Respond to of 116555

Mish, it sounds like a system that works good for their style of trading. For me, unless you're doing covered calls, options are an extremely risky trading vehicle. You need to be right 3-ways: Time - Your options have time premiums that decay. Price- You need to be on the right side of the price momentum with a good entry. Volatility-There are volatility premiums, so you need to be on the correct side of the trend in volatility. I find spreads less enticing than trading 2X or 3X ETF's, so I'm basically left with naked calls and puts. For me to enter a trade I need to have clear, high probability patterns with clear directional trend. The risk/reward needs to be so skewed in favor of profitability as to be a near lock. I'll give an example of a lock swing trade. Early December SNDK was trading about 10% below cash at about $5.85. Well, Max Pain for December was something like $7.50 on SNDK, so there was an overhead target with high probability. The Dec 5 calls were trading at about $1.15, so the premium was not that high. The daily, weekly, and monthly charts were extremely oversold. There was a steep falling resistance line with not much overhead resistance. The broader market was also in bounce mode. Well, SNDK moved up briskly, and that trade was very profitable. That's the type of thing I typically look for in a swing trade, as options are a great way for the MM's to fleece you. I also trade index calls and puts, especially QQQQ. The liquidity is good, and you can do pretty well on day-trades in a strong trend.