My Two Favorite Options Strategies Right Now

My Two Favorite Options Strategies Right Now
By Jeff Clark
September 01, 2009

These days, much of the market's activity occurs in the first few minutes. Stocks either gap sharply higher or sharply lower... and then spend the rest of the day ping-ponging back and forth in a small trading range.

For traders, this sort of activity is like watching a football game in super slow motion. You know there's the potential for something big to happen, so you can't look away. But it's tough to keep your eyes open.

By the look of the following chart, that may be about to change...

This is an updated chart of the Volatility Index (VIX) plotted along with its Bollinger Bands – which last I shared with you back on August 13. The VIX measures the premium option traders are willing to pay for index options. The "BBs" measure the trading range of that premium.

As you can see from the bottom chart, the Bollinger Bands are as tight as they've been in a year. In other words, the volatility of option premiums is low... and unlikely to shrink further. So stock-market volatility is set to expand.

Also, the chart of the VIX itself shows a recent series of "higher lows." This indicates an emerging uptrend. If the VIX can pop above 28, then it will also have a series of higher highs, and the new rising trend will be established.

So the VIX is set to break out one way or another. And based on the look of the chart, it appears the path of least resistance is higher.

Get ready for an increase in volatility – which should translate into more intraday activity for traders. There are two ways to profit from this...

For one, you can speculate on market direction. Since a rising VIX is typically associated with a falling stock market, traders can buy puts and bet on the downside in stocks.

Get Ready for a Huge Move

The Market Is Ready to Sleep Until Noon

Or you can structure a "market neutral" strategy by buying an equivalent number of puts and calls. The idea here is that direction doesn't matter. The increase in volatility will inflate the premium on the options... so the gain in one direction will more than offset the loss in the other.

Either way, based on the chart of the Volatility Index, now is a great time to be buying options.

Best regards and good trading,

Jeff Clark

Jim Rogers just visited his No. 1 country to invest in right now
Small island nation could boom after decades of war.

The dumbest, most frivolous lawsuit we've seen
Expect a lot more of this in the nanny state we're creating...

Great chart of the history of the dollar
It's heading to zero.

•	China suffering an official bear market... down 23% from August high to its lowest point since May.
•	Sugar continues bull run... sugar ETF up 46% since June.
•	Municipal bonds are soaring... nearly every muni bond fund hits a new 52-week high.
•	No bottom yet for natural gas... natty ETF down 57% since January.

	Last	Change	52-Wk
S&P 500	1030.66	+0.25%	-19.58%
Oil (USO)	37.54	+1.58%	-60.76%
Gold (GLD)	93.21	+0.45%	+14.57%
Silver (SLV)	14.07	-0.15%	+5.39%
U.S. Dollar	77.97	+0.49%	+4.96%
Euro	1.44	+0.90%	-2.30%
VIX	24.62	-1.32%	+24.60%
HUI	359.64	+1.91%	+3.79%
10-Year Yield	3.46%	0.02	-0.28

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Company	Sym	Industry
Changda Intl	CIHI	chemicals
City Telecom	CTEL	telecom
Sinovac Biotech	SVA	biotech
Ebix	EBIX	business services
Lubrizol	LZ	chemicals
LaserCard	LCRD	data storage
Sonic Solutions	SNIC	business services
OncoGenex Pharma	OGXI	pharma
Biocryst Pharma	BCRX	biotech
Marvel	MVL	movie studio
Alpha Pro Tech	APT	medical devices
Rodman & Renshaw	RODM	broker
Vical	VICL	biotech
GHL Acquisition	GHQ	acquisitions
DreamWorks	DWA	movie studio
BioNeutral Group	BONU	biotech
Bon-Ton Stores	BONT	dept stores
Sciclone Pharma	SCLN	pharma
Scailex	SCIXF	electronics stores
Banco Macro	BMA	bank
IncrediMail	MAIL	business services
Vimicro Intl	VIMC	semiconductors
Intl Shipholding	ISH	shipping
Delcath Systems	DCTH	pharma
Nanometrics	NANO	nanotech
WorldGate	WGAT	telecom
Spectrum Pharma	SPPI	pharma
Nektar Therapeutics	NKTR	pharma
National Australia	NABZY	bank
Mgmt Energy	MMEX	metals & minerals
Diamond Mgmt	DTPI	business services
Atrion	ATRI	medical devices
Encore Wire	WIRE	copper wire
AmerisourceBergen	ABC	pharma

Company	Sym	Industry
The9	NCTY	online games
Princeton Review	REVU	for-profit ed
Hampton Roads	HMPR	bank
Energy Conversion	ENER	semiconductors

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