The Trend Is Your Friend

Ken Trester — Tue, 11 Mar 2008 17:33:23 GMT

If there is one market adage that has proven itself a huge money maker over the years, it is this: "The trend is your friend."

Simple enough advice. Buy calls when the market is trending up, puts in a down market.

But -- and I mean a really big BUT -- most investors cannot bring themselves to believe that you can invest profitably in a down market.

Millions of investors could make hundreds of millions of dollars simply by heeding the direction of the trend even if it is down. But most investors won't invest in a down trend.

We are options traders and we can – unlike any other group of traders – make money when the market goes up – down – even sideways.

I don't care if the market goes down because I can trade puts – you can as well and you SHOULD as well.

Most investors are familiar with call options, because they are the easiest to understand. A call is simply a substitute for buying a stock. If the stock price rises, chances are the price of the call option will also rise.

That is simple, straightforward and frankly what appeals to most traders. Why? Because we all believe – practically from birth -- that the only way to make money is for a stock to go up in price.

It's in our trading DNA.

It's hard to believe that you can make money when a stock sinks.

You can and I am here to tell you that historically I've made more money, a lot faster with puts than call options.

This Week's Confession

My newsletter subscribers have not made a single dime in call options (the up market bet) since late January. Not a penny! But so what?

In the same time we've had 9 profitable put option trades. On March 4th we closed a Hecla Mining put for a 76%. On March 8th we also closed a Louisiana-Pacific Put for a 66% profit, and a Gannett Put for a 76% profit.

That's real money made (real time percentage gains) in 3 weeks or less – if I annualized the profits it will be in a word -- "Obscene!"

As I said that the outset you've got to follow the trend. Right now you must trade puts to profit.

Look, we have a huge advantage over stock traders. As the market sinks they lose, as the market sinks we can win!

You can start wining this week. I publish my next Ultimate Options Report on Friday March 15th and it will have my hottest recommendations. I urge you to get it. Ultimate Options is strictly limited to only 825 traders world wide.

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How to Trade with the Trend

I've been kicking around the options market since 1973 and I know that most investors are not as familiar with the call options opposite, a put option. And for this reason, they hesitate to use puts to their full advantage.

But here is all you need to know -- a put option PROFITS when a stock price falls.

In fact, it is the existence of put options that makes options an "all seasons investment." Because regardless of whether the market is rising or falling, you can use options to profit from a move in either direction.

Now while it's smart to follow the trend you need a balanced approach. I've told you time and again I can never be dead certain where the market will be from week to week. No one can. And so

I'd never bet the farm on just calls or just puts.

Follow the trend yes; blindly follow it no.

No matter what current market conditions are, it is always a good idea to be ready for a sudden pullback or jump forward.

In today's market that is more important than ever. Computer-driven trading and push-button money transfers can cause sudden market falls almost overnight. And even if the market itself doesn't collapse, individual stocks do almost every day.

Professionals hedge their stock portfolios by buying put options and calls. It night be 80% one way and 20% the other depending on the trend.

And of course heed my most basic advice: buy underpriced put options on stocks that fall further than the market during a decline. The best place to find these options is in my newest publication, Ultimate Options.

I'm doing all the heavy lifting in Ultimate Options giving you great potential trades every Friday!

If you'd like to jump aboard our new weekly trading report Ultimate Options and save an instant $390 Click here http://www.ultimateoptionstrategies.com/UOS-II-03-11-08.htm

You can save if you act quickly plus get several important bonuses. This publication is limited to only 825 traders and we've already sold a bunch.

Closing Thoughts

When you buy puts, be sure to "time-diversify" by always owning puts that expire in every month of the year. These puts may pay off even if the market or your stocks don't fall. So not only will you be buying portfolio insurance but you may also develop an entire new profit center.

Buying a put option is as easy as buying a call option. And your risk is the same -- you can only lose what you pay for the option, nothing more.

The drawback to buying a put option is the same as with buying a call option -- it has a limited life, and it might expire before the stock makes the move you are anticipating. But stay tuned and I'll get you out with a minimal loss or more often than not a profit.

The Market

Our indicators are giving bearish readings. Stocks managed to ignore one of the most historically bullish weeks of the year and instead closed below key support levels. We have been watching these support levels for quite some time and have been warning that a break below them could signal big trouble ahead. Now that the break has happened we believe a major sell-off could be around the corner.

How great could the damage become? The next major chart support for the Dow Industrials is at 10,800. A fall that low would represent more than a 20% drop from last year's highs. Keep in mind that many investors consider a 20% decline to be the definition of a bear market. So a decline of that magnitude could trigger even more selling as long-time bulls finally throw in the towel.

There is precedent for this kind of action. In 1987 the major stock indexes fell 20% from their highs during the months leading up to the October crash. Only after that 20% level was exceeded did the real panic selling begin. Also, in 1987 the dollar was screaming lower, similar to what it is happening today.

A more recent comparison is the year 2000. In January that year stocks began a slide that would eventually take the Dow Industrials more than 30% lower before they bottomed out more than two years later. A similar fall from last year's highs points to a landing at around 9900. If it falls that low, the Dow has very good support at that level, which it was busy establishing during almost all of 2004.

The year 2000 was marked by almost the entire technology sector facing dire economic straits. It was also an election year in which a new U.S. president was elected. In 2008 almost the entire financial sector is facing dire economic straits, and it is also an election year in which a new president will be elected. All of this adds up to some eerie similarities to years that did not have good stock market outcomes. Options players should continue to focus on establishing bearish positions by buying puts on market rallies.

Thanks for stopping by and to get more trading info about Ultimate Options click here http://www.ultimateoptionstrategies.com/UOS-II-03-11-08.htm

The Options Report : Trend Analysis

The Trend Is Your Friend

This Week's Confession

How to Trade with the Trend

Closing Thoughts

The Market