The feature article this week lays out three of the seasonal patterns that we trade or observe in October and November. More will follow later in the year, and they will be the subject of another article at that time. The October Seasonal trade won’t be operative this year unless there is a larger pullback than the modest one we had last week.
This week’s feature article is a continuation of the one in the last issue. Here, we describe option strategies that are similar to owning stock, or are at least a way to reduce time value exposure, while still retaining some leverage in a speculative position.
What first appeared to be an oversold rally gathered so much steam that it has negated our previously bearish outlook (see indicator review, page 6).
In our last issue, the feature article discussed whether it might sometimes be preferable to trade the underlying stock as opposed to buying an at- or slightly in-the-money option. This week’s article is a follow-up to that discussion: we are going to look at various option strategies that are, in effect, almost like owning the underlying stock.
The common perception among option traders is that option buying is the “best” approach to a speculative situation because of the great leverage that the calls or puts provide. But in many cases, ranging from extremely short-term holding periods to ones of more moderate length, where limited stock moves are likely, one may be better served by trading the underlying entity than by buying options.
Two indicators that we have only briefly discussed in the past are now at an overbought state. Since each has merit, it was decided that a study should be done on the data to see if there was some usefulness other than just yet another overbought indicator. Sometimes when one looks at data in just the right way, a new thought for an indicator will jump into one’s head, and that’s pretty much how these came about.
