Bigger Gains, Less Time. Tap Into the Potential of Weekly Options

From Price Headley's  "Potential of Weekly Options Series".....

Traders spoke, and the exchanges listened. And, if the growing popularity of the new weekly expiration options is any indication, these shorter term puts and calls will soon join their monthly expiration counterparts as mainstream trading instruments.

Just as the name implies, the newest innovation in option trading are derivatives that are issued on Thursdays, and then expire the following Friday six trading days later.

But why bother with short duration instruments when the traditional monthly expiries have been working fine for all these years? There are actually quite a few advantages these instruments boast that simply can't be said for the alternatives. Consider this: Weekly options inherently offer a greater Delta. That just means each of them are more responsive to changes in the underlying security's price during their lifespan than monthly options are.

Weekly options don't suffer from a high theta
In other words, time decay isn't a major impediment for weekly options. Since they're so short in duration, there's no excess time value (or premium) baked into the price. As a result, weekly options tend to cost less.

While those two details are the favorable technicalities, the overarching attraction to these new short term derivatives is not only bigger picture, but much more important than the high delta and low theta.... weekly options are amazingly flexible.

Learn specific techniques and strategies for trading Weekly Options
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One of the more challenging drawbacks of trading traditional options has been the misalignment of a traders timeframe and the options lifespan.

For example, a trades sweet spot may end up spanning the last week of one month and the first week of the next month. However, since monthly options expire right before that sweet spot has occurred (and are issued several weeks before that period), a trader may be forced to choose an option, expiration, or strike price that doesn't fully maximize a trades potential.

Said another way, a lack of choices of when an options life begins and ends means the trade's theta and delta aren't ideal, leaving money on the table.

Weekly options, conversely, are new every week, so a trader can pick and choose to step into a trend that's moving at the time. Or, he or she can choose to pass on a trade that's stagnant at the time. And what happens when the underlying stock or index starts to move again? No problem,  just step in again with the next weekly issue. There's no need to waste time and tie up capital by holding an option during the underlying security's dead periods.

And what sorts of securities or indices currently offer these weekly options. All the usual suspects in terms of indices are available. Major indices like the S&P 500, and weekly options for some of the major sector ETFs are on the table as well. A few of the most highly-traded stocks are in the fray too. Since these are issued on a revolving basis at the discretion of the exchanges though (largely depending on demand), you never know which stock you may be able to play this way in the future. [Indeed, many traders have used them as a way to leverage a position for purely a one-time event, like an earnings announcement.]

While the advantages of trading weekly options are clear, a new set of trading mindsets and rules also apply:
Get your short term charts and ebb/flow predictions ready. One of the primary reasons equity and index options exist in their traditional time frames, with a lifespan of months if not more than a year, is to offer an active investor a way to leverage his or her capital, while allowing that same trader to ride out rough patches on the way to the end goal. Weekly options, on the other hand, are a short-term chartists dream. The key question is, where will this stock/index be in a week (or less)?

Use the market tide to your advantage. In the same vein is think short term, traders should tap the markets near term tidal forces since 3 out of 4 stocks tend to move in tandem with the markets strong moves. Yes, given enough time, the best individual stock trends can defy the market's ebb and low. The whole point here is speed though, which means calling the market right at any given time is half the battle (whether you?re trading stock or index options).

Keep the original intent in mind. It's contrary to most everything we?ve been taught as investors, but the whole point of weekly options is to reap the benefit from a short term move,  get in and out accordingly. Some traders are using them to profit from news announcements (like earnings). Others are just using them to hedge a position through a certain timeframe. Don't be afraid to cut loose once your reasonable objective has been met.

The proliferation of weekly option trading is sure to be a beneficial one for traders. Like any other trading arena though, it's the mastery of the nuances more than the mechanics that will be the key to your success.

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Crude Oil and Energy Headlines For Sunday Evening Oct. 10th

Crude Oil Rises a Second Day Amid Speculation Fed May Buy Debt to Boost Economy

Crude Oil advanced for a second day in New York as the dollar fell against the euro after bigger than expected U.S. job losses spurred speculation that the Federal Reserve will buy more debt to boost the economy. Futures rose 1.2 percent on Oct. 8 after the Labor Department said that employers cut 95,000 workers in September following a revised 57,000 decrease in August. The median estimate of economists surveyed by Bloomberg News was for a drop of 5,000. A weaker U.S. currency increases the appeal of commodities as an alternative investment.

“The market is pricing in a high probability of quantitative easing and so the U.S. dollar has come off,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “A lot of it seems to be because of the weaker non-farm payrolls number.” Crude for November delivery gained as much as 76 cents, or 0.9 percent, to $83.42 a barrel in electronic trading on the New York Mercantile Exchange, and was at $83.13 at 12:43 p.m. Sydney time. Futures climbed 99 cents to $82.66 on Oct 8. Prices are up 4.8 percent this year.

The dollar lost 0.3 percent to $1.3978 per euro, after closing at $1.3939 on Oct. 8 in New York. The Fed may purchase bonds in a strategy known as quantitative easing, weakening the U.S. currency and boosting dollar denominated commodities. Brent crude for November settlement climbed as much as 53 cents, or 0.6 percent, to $84.56 a barrel on the ICE Futures Europe exchange in London. It jumped 60 cents, or 0.7 percent, to $84.03 on Oct. 8.......Read the entire article.

OPEC May Maintain Oil Output in Vienna on Uneven Economic Growth

OPEC may leave oil production unchanged when it meets in three days’ time because signs of a recovery in demand have yet to emerge among the world’s developed economies. The oil market is “a little oversupplied,” Mohamed al- Hamli, the oil minister of the United Arab Emirates, the third- biggest producer in the Organization of Petroleum Exporting Countries, said Oct. 9. OPEC members are all exceeding their allotted quotas after prices surged 78 percent in 2009 and a further 4 percent this year.

Fuel demand in the U.S., the world’s biggest oil consumer, dropped 6.4 percent to 18.5 million barrels a day, according to the U.S. Energy Department, the biggest weekly decline since 2004. Oil prices are forecast to slide this week, according to an Oct. 8 survey of 33 analysts by Bloomberg. “I don’t think there will be any shift” in quotas by OPEC, Qatari Oil Minister Abdullah al-Attiyah said in a phone interview yesterday after meeting in Kuwait with ministers from Saudi Arabia and other Persian Gulf nations. “Producers and consumers are happy” with current oil prices, he said.

Crude oil closed at $82.66 a barrel in New York last week, about the same level as when the group last met on March 17. Growth in oil demand will be uneven next year, with the International Energy Agency forecasting a 4.3 percent increase in China and a 0.8 percent retraction in Europe’s five biggest countries. OPEC members, which supply 40 percent of the world’s oil, meet Oct. 14 at the group’s headquarters in Vienna........Read the entire article.

Hedge Funds Raise Bullish Bets on Oil to Five Month High

Hedge funds raised bullish bets on oil to the highest level in more than five months amid speculation that the Federal Reserve will enact further stimulus measures to keep the economic recovery on track. Hedge funds and other large speculators increased wagers on rising crude prices by 44 percent in the seven days ended Oct. 5, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the highest level since April 23.

“The writing has been on the wall for the rally in crude oil for the last few weeks,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania. Crude has rallied 12 percent since Sept. 17 amid growing evidence that the Fed will need to start debt purchases to prevent the world’s biggest economy from sliding back into a recession, weakening the U.S. currency and boosting dollar denominated commodities. The dollar depreciated 1.1 percent last week, while crude advanced 1.3 percent.

Oil for November delivery rallied 99 cents to settle at $82.66 a barrel on Oct. 8 on the New York Mercantile Exchange after the Labor Department said U.S. employers cut hiring more than forecast in September, trimming 95,000 workers. The median estimate of 87 economists surveyed by Bloomberg News was for a decline of 5,000 jobs........Read the entire article.

Courtesy of Bloomberg News

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China: Is a Housing Bubble, a Fragile Economy, and an Agricultural 'Doomsday' Scenario Possible?

From Rick Bradner, at the Oil and Gas Bulletin.....

I’ll preface my remarks by stating my bias up front. I love China, the Chinese people, the food, the chaos, the confusion, the expectations, and all the contradictions. I’ve traveled there more than 10 times in the last 20+ years and have just returned from a 5 week visit. I lived and worked in Kunming from 1997-1999.

First, a brief recap on how we got here:
China has been in a more or less constant state of upheaval for the last 100 years beginning in 1912 when a revolutionary military uprising led to the provisional government of the Republic of China being formed in Nanjing by Sun Yat-sen. This republican government was fragmented and fairly powerless. Following the death of Sun in 1925, China descended into a more or less constant state of civil unrest including the Sino-Japanese War (1937–1945) ending in 1949 with the defeat of Chiang Kai-shek by the Communist forces of Mao Zedong. A range of policies aimed at social engineering such as “ the 100 Flowers Campaign”, “the Great Leap Forward” and “the Great Sparrow Campaign” added greatly to the human toll wrought by the drought of 1959-60. It was estimated that at least 25 million and possibly as many as 35 million Chinese died due to famine.

This was followed in short order by “The Cultural Revolution” which officially ran from 1966-1976 and ended with Mao’s death. Among other things, The Cultural Revolution brought the education system to a virtual standstill, with many teachers and professors being sent for “re-education” and this is still having an enormous impact on Chinese development policy.
The last major “revolution” was far more positive, when Dèng Xiaopíng came to power and opened up China to capitalism 30 years ago. The time since has been the longest period of stability the country has enjoyed in at least 150 years.

Is that Swan Black?
Education & the new leaders – The Cultural Revolution is the pivotal event in recent Chinese history. Economically, a major transition the country is going through as a result of the Cultural Revolution is replacing that generation’s relatively uneducated workforce with the “post-revs”. All else aside, this should deliver a significant move in productivity.
Politically, the next group scheduled to assume leadership of China beginning in 2012 will include the first of the post-Cultural Revolution generation to receive what would be considered a modern education.

It’s an open question as to what direction they will take the country. As the first computer generation, will they be open to a more liberal policy on internet access, or having never experienced the ravages of war, will they be less adverse to military adventures? Japan, Notwithstanding the enormous recent investments Japan has made, nor official denials, the Chinese neither like nor trust Japan. The memories of the atrocities of the Sino-Japanese War have not diminished. On my recent visit I saw frequent references to and recounting of Japan’s brutality in China. A military conflict between the nations within the next 15 years is a real (if small) possibility.

China’s bubble All protestations to the contrary, I believe that China is in the midst of a housing bubble approaching the levels of those in the U.S.pre-2008. Currently, there are NO property taxes in China. Given the limited number of available investment options, this has resulted in a large number of housing units being built and left vacant. I’ve heard estimates for different cities ranging from 30%-55%. There has been discussion recently of introducing a property tax.

It makes a lot of sense to do so as it would take a bit of air out of the “bubble” in prices and generate some revenue for hard-pressed municipalities who have to supply services, but many of the developers are government owned, carry a large inventory of unsold units, and have a substantial interest in stalling this idea for as long as possible. If a property tax comes about it will be quite low initially but the threat of escalation could take a lot of new construction out of the equation. This could seriously impact the commodities markets.

“A disaster for the world” Premier Wen Jiabao said Wednesday (Oct.6) that a rapid shift in the value of the yuan would be “a disaster for the world” I wouldn’t argue that the RMB isn’t over valued, but given that it’s pretty much the only major economy that’s reasonably stable at the moment, this is probably not the best time to kick the legs out from under their chair. The Chinese economy is really only 30 years old and is still pretty fragile; anything but a gradual move could derail it and the global recovery. “If the yuan isn’t stable, it will bring disaster to China and the world,” the Premier warned. I don’t think he’s too far off the mark.
China’s “Great Depression”? Something I’ve been thinking about a lot lately and that is admittedly pretty far off the map, is the possibility of a “Black Swan” agriculture event in China.

In 2008 I often countered the contention that the U.S. was then headed for another “Great Depression” by pointing out that in 1930 20% of the U.S. work force were farm workers (2% today) and that the “Dust Bowl” drought of the ‘30’s generated a 15%+ unemployment rate all by itself. This on the heels of the 1929 economic crash, created the “Great Depression”; a true “Black Swan”event. Official numbers suggest that farming in China still accounts for 800 million (61%) of it’s 1.3 billion people. Imagine for a moment the chain of events that might follow a repeat of the 1958-1960 drought.

For anyone interested in a daily update on the view from Beijing, there is an English language version of CCTV


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Brazil....The New Saudi Arabia?

If any of the oil reserve reports coming out of Brazil can hold up to industry scrutiny, then Brazil is sure to become the "New Saudi Arabia" in the not to distant future. But a not to unfamiliar phenomenon took place as the Brazilian government began to expand it's control of Petrobras. Investors began to flee in droves, and the stock price is proving it.

So is this a buying opportunity or is Petrobras doomed to go the way of Chinese oil companies in the eyes of western investors.




Here is some great numbers from World Market Pulse....

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Beyond Oil: The View from Hubbert's Peak

With world oil production about to peak and inexorably head toward steep decline, what fuels are available to meet rising global energy demands? That question, once thought to address a fairly remote contingency, has become ever more urgent, as a spate of books has drawn increased public attention to the imminent exhaustion of the economically vital world oil reserves. Kenneth S. Deffeyes, a geologist who was among the first to warn of the coming oil crisis, now takes the next logical step and turns his attention to the earth's supply of potential replacement fuels. In Beyond Oil, he traces out their likely production futures, with special reference to that of oil, utilizing the same analytic tools developed by his former colleague, the pioneering petroleum supply authority M. King Hubbert.


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Talisman, Statoil Buy Texas Shale in $1.3 Billion Joint Venture Deal

A Canadian-Norwegian joint venture is buying 97,000 acres of natural gas rich land in Texas' Eagle Ford play, the companies said Sunday. Calgary based Talisman Energy Inc. and Stavanger, Norway based Statoil are paying $1.325 billion for the land, which currently belongs to Enduring Resources, Talisman said. The project will be a 50-50 joint venture between the companies. Talisman will be the initial operator, but Statoil will operate at least half of the joint assets within three years.

Talisman estimated that the property contains the equivalent of 800 million barrels of oil. The property currently produces the equivalent of 5,500 barrels of oil per day, Talisman said. It said six wells are producing energy, and 20 more will have been drilled by year's end. Shale oil and gas deposits have become a key source of U.S. energy production. New techniques make it easier to reach oil and gas trapped beneath layers of rock deep underground. Both Talisman and Statoil have been expanding their shale gas operations in North America.

Courtesy of  INO.com Market and Intraday News


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Dian L. Chu: Next Major Resistance $87 a Barrel

Crude Oil hit a high of $84.09 on Thursday morning before investors sold into the rally in all commodities before the volatile jobs report on Friday morning. The shorts pushed Crude to a weekly low of $80.30 early Friday morning, which was a nice buying opportunity, as Crude Oil closed the electronic session on Friday at $82.84.

After the jobs report came in within expectations, there was substantial fund buying back in all the commodities across the board with the thought that the still weak job market mandates the Fed to start the QE2 Program in a serious manner.

So, Crude basically went from $76 a barrel to $84, as it was under subscribed by fund managers at the $76 level before the product`s inventory levels started to show declines due to lower refinery utilization rates and a pickup in demand on the Distillate side.

The pending jobs report supplied the expected pullback, and now Oil is trading at just below the $83 level. It should test $85 before Wednesday of the upcoming trading week, as the rush back into commodities after the jobs report indicates that this inflation trade still has some major support and legs by investors.

If Crude breaks $79 to the downside then obviously the risk trade is being taken off by investors.....See Dian's Crude Oil Technical Charts.



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Iraq Raises Crude Oil Reserve Estimates

Iraq raised its estimate of crude oil reserve, by +24%, to 143.1B barrels, making it the third largest reserve in the world, after Saudi Arabia and Venezuela. More impressively, its oil reserve has surpassed that of Iran. The news is important to future oil supply. Indeed, Iraq signed several contracts with multinational oil companies to raise output and 2 rounds of auctions were completed last year. The government also announced plans to hold its first auction of contracts to develop natural gas on October 20. What we should be worrying about is that the security situation, political environment and legal framework in Iraq may make exploration difficult.

Courtesy Oil N' Gold

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Oil N' Gold: Crude Oil Weekly Technical For Saturday

Crude oil rose further to as high as 84.32 last week, but formed a temporary top ahead of 161.8% projection of 70.76 to 78.04 from 72.75 at 84.53 and retreated. Initial bias is neutral this week and some sideway trading would be seen below 84.43 first. At this point, there is not sign of reversal in crude oil yet and further rise could still be seen. However, we'll continue to focus on reversal signal inside resistance zone of 82.97/87.15. On the downside, break of 78.04 support will indicate that rise from 70.76 is over and turn focus back to this support level.

In the bigger picture, the stronger than expected rally from 70.76 dampened the immediate bearish view and suggests that rise from 64.23 is still in progress. Nevertheless, we're still favoring the case that medium term rally from 33.2 is already completed at 87.15. Hence, strong resistance should be seen as crude oil enters into resistance zone of 82.97/87.15 and bring reversal. We're still expecting another fall to 60 psychological level (50% retracement of 33.2 to 87.15 at 60.18). However, decisive break of 87.15 will put focus on long term fibo level at 50% retracement of 147.27 to 33.2 at 90.24.

In the long term picture, current development suggests that rebound from 33.2 is finished at 87.15, inside 76.77/90.24 fibo resistance zone as expected. Price actions from 147.27 are treated as consolidation in the larger up trend and with 90.24 fibo resistance intact, a test of 33.2 eventually is in favor. Though, decisive break of 90.24 will argue that crude oil will bring stronger rally to above 100 psychological level as a relatively powerful second wave of the consolidation continues.

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This Is What Your Trading Is Missing

Often what is missing from an unsuccessful trader's strategy has nothing to do with what trading software they are using or which technical indicators they follow, but more about their psychology as a trader. What differentiates these "super traders" from the rest of us? Well, read the questions below and if you answer 'no' to any of them, then you may be lacking important characteristics that are holding you back from trading success.

- Have you learned to develop patience with your trading?
- Do you know how to come out of a loss as a better trader?
- Are you able to avoid trading panic?
- Do you love trading?

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