Thursday, May 21, 2009

Claims Remain High

Claims again came in greater than expected, with 631,000 claims filed in the previous week. Rates and markets were unphased by the number, the 10 year rate holding at 3.17%.

Notice the chart above showing the general decrease in volatility. While we still target the 3.6% level next month, one can see that rates are holding within a well-defined pennant formation. Having this perspective is important regarding our trading strategy. We are up about 30% so far this year selling strangles, that is out of the money puts and calls, on a 10-year trading vehicle. We continue to employ this strategy going forward until our long term perspective changes. From our perspective, we are not really concerned whether rates go up or down, as long as they remain in the pennant.

If you would like to learn more about the strangle strategy and how to make lots of money in any kind of market, take a look at the Time is Money articles that I wrote. You can access them at the Ezine article box in the right hand column.

Great Strategies, Great Payoffs

Selling options is a great idea almost always, even when you wish to buy stocks. Our 2009 core stock portfolio has a number of buy-write positions. At the beginning of the year, when volatility levels were high, we were able to purchase stocks and sell at-the-money options generating 30% - 40% of premium. This gave us a great risk-reward ratio. Most of our plays provided for a better than 30% downside protection with a high probability that the position will pay off with a 40% to 50% gain for the holding period.

If you are not using derivatives in your trading strategies, you are missing a great way to define your risk-reward parameters. If you would like to learn more about the many strategies that can help you make more money, subscribe to my Ezine articles or the Trendsetter newsletter.

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