Purely Technical: Aug 10th, 2009 Issue

The latest issue of the Purely Technical newsletter has been published. It is available via the following link:

Purely Technical - Stock Market Newsletter

Follow-up to IWM Long Strip Illustration

This is a follow-up to the illustration provided in the educational article - Long Strip - A Great Bear Market Strategy [Part 1] - that was posted last Monday.

When the trade was initiated, the anticipation was that the underlying ETF would continue to decline; such was the sentiment. However, we were also mindful of the fact that longer term charts were deeply oversold and that a strong bullish reversal was possible at any point (hence the choice of a strategy such as the Long Strip, as opposed to say 'Long Puts').

As things have turned out, the bullish scenario has played out and the underlying has nearly reached the target area as of this afternoon. Aggressive traders may be willing to wait and see what happens next week, which is expiration week of course.

However, the cautious trader will consider selling off the Calls, which are now trading at 4.50 (which was the initial cost of the entire Strip, as you'll remember) and be happy that at worst a breakeven has been achieved on the trade. He/she will hold on to the Puts, just in case there is a big drop into expiration and the Puts grow in value and add to the profitability of the trade.