Here We Go Again With The Debt Limit!
Politics always play an important part in running the U.S. government so why would this time be any different? For the umpteenth time the Federal government’s debt limit is being used as a pawn in Washington politics. This time President Trump has said that the shutdown is on him. He will not bend to the Democrats that want to tie the immigration issue to running the government.
What a complete farce this is. It happens every time the debt limit has to be raised and will continue to happen until the debt limit reaches a level that cannot be sustained. By then, hopefully we will all have passed on to a better place. The drop-dead date is December 21st, so it will be just before Santa arrives. Timely as always.
President Trump has said that he wants the money for the wall between the U.S. and Mexico to cut down on illegal immigration. He claims that he is not against immigration he just wants the U.S. to put into place a physical barrier that will prevent the illegals from crossing into the U.S. He may be right or wrong, but it does make sense to have a policy in place that controls immigration. Most of us, including myself are immigrants. My grandfather arrived here from Bavaria in 1895. He was an engineer and moved to Pittsburgh where he could work in the steel industry.
Immigration is always going to be an issue. No matter what your viewpoint is the future of the U.S. will largely be determined by how we handle immigration. The Democrats would like to remove all barriers and that works well for their political model. The more disenfranchised voters you can get the better. The Republicans don’t want our borders opened to anyone that cannot qualify for immigration under our current standards. On a humorous note, Chuck Shummer reminded the president that if he would not extend the debt limit that he would not have as many secret service men to guard him when he played golf over the holidays. You gotta love Washington.
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
What is Pin Risk and how do I deal with it?
When the weekly options expire each Friday, the profit or loss in the spread is calculated by subtracting the credit or debit from the strikes used in the spread and using the resulting number as the profit or loss. Even using $1 strikes there is a 99% chance that price will not settle exactly on a strike. If you are using $5 wide strikes there is a 1 in 500 chance it will settle on a strike, but from time to time it will happen. If you have either a debit or credit spread in place it could settle on either the short end or the long end of the spread. If it settles on the short end, most likely you will be assigned 50% of the shares. Vice versa, if it settles on the long end, you should exercise 50% of the shares.
Why 50% of the shares? Because there is the “other side of the trade”. Remember when you are short an option someone must be long the option. So, they have same problem that you do and the most logical solution is for them to exercise 50% of their options. Does it always work perfectly? No nothing works all the time but it gives you the best mathematical solution to end up without having stock in your account come Monday morning. If you do end up with stock on Monday you will either take delivery or buy or sell the shares to get flat the market. In my 35 plus years of trading options I have found that this trade, although scary, has ended up a scratch in the long run!
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. Let’s look at how the Equity markets are faring.
Down Side Break Out (Bearish)
Last week the stock market appeared to be making a huge head and shoulder pattern. It looked as if either the strong hands could end up being either the bulls or the bears. We have now violated the right shoulder’s support line (neckline) which technically means that the bears have become the strong hands. Does this mean to dump all of your stocks? No. It means that the strong hands are now the bears and they may drive the market lower. How low will it go before it finds a bottom? That is impossible to tell but historically if the neckline is taken out in the head and shoulders pattern we can expect a strong move south before the bulls will come back. This is an unusual pattern at this time of year, so it is hard to predict where we will go from here. Will Santa come to town and save the end of the year? Who knows but it should make for some interesting trading!
Get Your FREE Two-Week Trial Subscription
The option trades and strategies offered by The Optionomics Group are very unique in that they all have limited risk while creating great leverage. Our basic BL – BR Credit Spread Strategy (and all of the others) let you control 100 shares of a $200 stock ($200*100 = $20,000) for less than $500 (the spread differential minus the credit spread) or 40:1 leverage with your risk limited to only $500. Plus our strategies produce winning transactions in four out of five possible outcomes.
The Optionomics’ strategies let you become the casino whereby you have a mathematical edge that lets you grind out consistent returns in any kind of market environment. These strategies are designed to produce good returns over a short to intermediate term time frame. It is an approach to the stock market which will be hot, cold or average over time, but the end result should be very good in any type of market environment.
I offer a FREE Two-Week trial to the various subscription services with no cost or strings attached. Each strategy is explained in a 5-7 page booklet which includes sample recommendations and model portfolios. I doubt that you have ever seen anything like this. During your FREE trial, you can paper trade the various strategies and get a feel for the deal without risking a penny. Simply click on the appropriate tab on the Optionomics’ Home page to access the informative booklets and then sign up for one or all of the weekly subscriptions.
- The 21st Century Covered Calls Strategy: A modern day alternative to the old fashioned covered call strategy.
- The Low Cost Put – Call Hedge Strategy: Sleep at night knowing your portfolio is protected for little or no cost.
- The Bullish – Bearish Credit Spread Trade: The basic strategy of trading weekly credit spreads.
- The Earnings Trade: Get in on potential big movers with little or no downside risk.
- The One Day Wonder Trade: Get ready for some real action. A one day trade with great potential.
- The Blow Off Top – Bottom Trade: A lot of action and big moves too.
Each Monday morning by 11:00 EST, the plays for the upcoming week plus updated model portfolios for each strategy are posted on the site. The prices in the reports are Monday morning’s opening prices. In addition, I have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the floor and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to one or more of the subscriptions for only $19.95 each per month on a month to month basis with no contract or strings attached. If you subscribe to three, it is only $49.95 per month while you can subscribe to all six for only $79.95 per month, a 33% discount. I think you will agree that this is a super offer so give it a try. Click on www.optionomicsgroup.com to access the Optionomics Group web site and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert