Lawrence McMillan was recently interviewed at The Disciplined Investor podcast where he explained some of the ways in which investing with options can be beneficial. Larry also discussed some of his favorite strategies and advised which he stays away from. Listen to the full interview by clicking here.
For the Introduction an explanation of Expected Value, refer to Enhancing Option Portfolio Returns Using Probability and Statistics - Part 1.
From a broad viewpoint, using our indicators, the picture is actually fairly bearish except for one major thing: the price chart of the Standard & Poors 500 Index ($SPX) has not broken down. A decline below 1780 would also interrupt the bullish pattern that currently exists of higher highs and higher lows on the $SPX chart.
The feature article discusses various trading strategies and systems around Thanks-giving Day. The article culminates with the recommendation that we already made in previous Hotlines: to buy “the market” at the close of trading on the Wednesday before Thanksgiving. The article provides some new ways of looking at the entire trade, including holding longer than we have in the past.
We all know that trading options is exciting, highly competitive, and can be very profitable. The key to long term and consistent profits in option trading is options education. The McMillan Mentoring Program, which is run by former Market Maker, white badge AMEX Floor Official, professional trader, and longtime MENSA member Stan Freifeld, can take your trading to the next level.
Price action -- via the $SPX chart -- and volatility have remained bullish. We have often said that price is the main indicator and that has certainly been the case this time.
Equity-only put-call ratios turned bearish a little more than a week ago and remain on sell signals.
Market breadth has generally been weaker than the market until very recently, but now the breadth indicators are rolling back over to buy signals.
With nearly four thousand optionable U.S. equities and ETFs and over 400,000 individual option contracts available on a daily basis, retail option traders need a way to determine the optimal way to allocate their investment capital. By employing some well known statistical techniques to calculate the expected profit and return for a set of option positions, an option strategist can rank possible trades.
There are a number of systems and indicators that we follow – some with frequent signals, others with as few as annual signals – that are worth noting, as the broad stock market makes new all-time highs. Some of these are related to market prediction, while others have nothing to do with stocks. So, in that sense, this article is a bit of a potpourri.
The stock market has had plenty of reasons to weaken, yet it can barely go down at all. This is a very powerful market.
$SPX has support at 1730, 1750, 1770, and now may have established another support area at yesterday's lows near 1780.
Equity-only put-call ratios generated sell signals this week.
Market breadth continues to be relatively weak. As a result, the breadth indicators generated fresh sell signals recently.
The market has now pulled back from its recent highs, accompanied by sell signals in breadth and the put-call ratios we follow. The “modified Bollinger Band” sell signal remains in effect, as well. However, without $VIX, any correction is likely to be minor. But if $VIX should close above 14, the bears could begin to flex their muscles.