(After reading this article, for a detailed discussion of writing
options on the S&P, listen to Michael Pinson's interview of James
Cordier on the Market Mavens Radio Show from January 2,
2002.)  Click here:
http://www.marketmavens.com/marketmavensradio020102.rm


High Percentage Trading on the S&P
By: James Cordier, Michael Gross, Liberty Trading Group
From: MarketMavens.com, January 8, 2002

With the volatility and higher option premiums, the S&P can be an
ideal market for the properly capitalized trader to write option
premium for increased returns. As we all know, this is the king of
the futures markets, and thus deserves the respect of the option
writer. For this reason, we only participate in the most
conservative of trades when dealing with this contract. Option
sellers (as well as their brokers) like to sleep at night. That being
said, the rewards can still be very attractive.

While we do not pretend to know what the stock market is going
to do, we cannot help but get caught up in the positive outlook
for 2002. Barring another catastrophic terrorist attack, we find it
hard to imagine any reason the stock market would go below the
lows set back in September.

For that reason, we recommend the following simple, high
probability strategy which, if successful, will yield about a 50%
return within 6 months.  Instead of trying to pick individual stocks,
or trying to guess what the S&P will do tomorrow or next week, a
trader takes an "alternate" way out.

At the time of this writing, the June S&P is trading at about 1169.
A trader can SELL a June S&P 825 put option and collect about
$1,200 for every option sold. The margin to do this is around
$2,400 per option at this time. For the option to go in the money,
the June S&P would have to fall over 343 points before June.
(That is a full 125 points below the low established in the wake of
September 11th.)

If the market moves higher from here, it should be an easy ride as
the option deteriorates and expires worthless, and the option
seller keeps the money. If the market stays steady, the option
expires worthless, the option seller keeps the money. If the
market falls but stays above 825, the option expires worthless,
the option seller keeps the money. Only if the market is Below
825 at expiration, does the seller have a loss.

However, before you run out and liquidate the retirement
account, lets take a look at the downside possibilities of the
trade. First of all, this trade is only recommended for the
comfortably capitalized account. A drop of 100, 200, or even 300
points in the S&P would still not put your option in the money. But
it may temporarily increase the value of your option and thus also
your margin requirement. A trader should have adequate back up
capital in his account if he intends to "ride out" such an
occurrence. The other risk, of course, would be the futures being
below 825 at option expiration, which makes the trader long the
June S&P at 825, not necessarily a bad thing. However, if the
market continues to fall down past 825 and the trader continues
to hold his position, losses could be substantial.

Stock traders considering this strategy should ask themselves the
following question: What type of return do I hope to make on my
stock portfolio by June of this year? Is it close to 50%? What type
of losses would I incur in my stock portfolio if the S&P fell to 825?
In the option trade, you still make 50%. In a move below 825, the
odds are good for a lot of traders that the losses they would incur
in their stock portfolio would be much greater than being short
the S&P at 825. In other words, we think this is a good way to
trade the stock market.

As we said in the beginning, we don't know what the stock
market is going to do. But from a risk standpoint, we like being
long from 825. If you would like to discuss trading this way for
your account, please feel free to give us a call at 800-346-1949
and I will be glad to discuss this strategy with you.

For a more detailed discussion of this trading strategy on the S&P,
please listen to James Cordier's interview by Michael Pinson of
Pinson Communications on the Market Mavens Radio show from
January 2, 2002. The recorded version of this interview is
available free to you on the Market Mavens website. To listen to
the interview now, go to
http://www.marketmavens.com/marketmavensradio020102.rm


James Cordier
Michael Gross
Liberty Trading Group
800-346-1949


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***The information contained herein has been carefully compiled
from sources believed to be reliable, but it's accuracy is not
guaranteed. Use it at your own risk. There is risk of loss in all
trading. Past performance is not necessarily indicative of future
results. Traders should read the "The Option Disclosure
Statement" before trading options and should understand the
risks in option trading, including the fact that any time an option is
sold, there is an unlimited risk of loss, and when an option is
purchased, the entire premium is at risk. In addition, any time an
option is purchased or sold, transaction costs including
brokerage and exchange fees are at risk. Nor representation is
made that any account is likely to achieve profits or losses similar
to those shown, or in any amount. An account may experience
different results depending on factors such as timing of trades
and account size. Before trading, one should be aware that with
the potential for profits, there is also potential for losses, which
may be very large. All opinions expressed are current opinions
and are subject to change without notice.