12/21/2007 8:51:28 PM
This month we had an 9.0% gross gain, which brings this services' net gains to $10,778 on a starting capital of $10,000, i.e. 107.78% over 12 months. A TRIPLE DIGIT Annualized Return! For a full break up of this performance, CLICK HERE.
Our system remains in Buy mode. Friday's large gap up and continuation meant that we didn't get our desired put spread. Please note, this will happen from time to time, it's not a problem. We simply reassess the market conditions and issue a new suggestion for the next trading session (expect this Sunday evening).
No positions open
The market found support this week around the 1440 level and has rebounded strongly to get back into the 1460 - 1490 resistance level. We could see some large moves both up and down over the next couple weeks as people take time off and trading volumes drop. The bias is up, so a year end finish around the 1500 level seems likely.
From the chart above we see that while the market gained around 40 points from Monday's close, we are forming a symmetrical triangle and this is a pattern of indecision. The trading range in the near term is likely to be contained between 1460 and 1510 and I don't anticipate a break of this pattern until mid January. Once the pattern is broken, either up or down, that will then set the tone for the next few months.
Summary of Position Last Month
We entered a Dec 1325/1315 Put Option Spread on November 16 and received a premium of $90 per spread. For our portfolio, this equated to a net return of $87.20 per $1,000 of margin or 8.72% after commissions for one month (using Interactive Brokers commission rates). The CBOE settlement price for the SPX options for December was 1474.95.
Summary of 2007
In the face of what seemed quite a challenging year in terms of market volatility, we generated a net return of over 100% with relatively low risk. Our net percentage returns for the year are as follows:
Please note, if you didn't compound your profits, then the net return for the year would have been 76.5% (simply adding up the monthly returns).
We only had one losing month for a minimal loss and then at the beginning of the May options period, we were in buy mode and anticipated another pullback to happen imminently and that would have taken us into sell mode. The only issue was that the sell signal didn't eventuate and we missed the trade (going forward, I don't anticipate this happening again as we now enter half positions if we anticipate a change in the immediate market conditions).
On the subject of volatility, it's generally not understood that when volatility is high, it looks as though the risk is high, however all that uncertainty allows us to stretch out our distance from the market so that we allow for the wider gyrations. On the other hand in a low volatility environment, we can't go too far from the market as the premiums become very thin. It then becomes a matter of when the volatility picks up, not if, and if you have positions on both sides of the market, you can get caught in a position that's too close to the market. This is where a lot of people got caught in late Feb. We had low volatility for months and then on Feb 27, we dropped around 4% in one day and suddenly volatility was awakened. Fortunately for us, we were in sell mode at the time and not exposed to the downside at all.
Note, for 2008 we'll be starting our performance page with a fresh $10,000 balance so that we can track how each year performs. Obviously, you are free to keep compounding your capital if you choose but certainly don't to be tempted to add more than you are comfortable losing. While our result for the year has been excellent, I cannot guarantee future results, so stick with you trading plan and allow yourself to be abundant.
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A final quote for the year from Henry Ford, "Whether you think you're right or whether you think you're wrong, you're right".
From the team and myself, I thankyou for your continued interest in our service. I wish you a safe and joyous festive season and a prosperous year ahead, and as usual Feel free to email me at email@example.com if you have any questions or comments.
PLEASE NOTE, I will be taking some time off over this festive period and the next update report will be issued in the second week of January. I will however, still be monitoring the market daily and if any action is required, I will issue an email accordingly (on Sunday evening I'll issue a new trade suggestion for January).