What Would Yogi Berra Do?
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Have You Seen This?

Have You Seen This?

If you don’t know where you’re going, you’ll end up some place else.” -- Yogi Berra

Ha! I love Yogi.

How can anyone be so right and make you scratch your head at the same time? Yogi could have said, “You need to know where you’re going,” instead. But had Yogi been so direct, his line just wouldn’t have had the same punch.

In mid March I wrote, “Topic A in the financial press is the continuing market collapse. When will it hit bottom; what will the bottom number be; when will it be safe to buy stocks again?” Now that line doesn’t nearly have the same cache as Yogi’s does it? No it’s a little more professorial. Well, I’m no Yogi.

Here we are in mid-July, four months later and Topic A remains the continuing market collapse. Question number one remains when will be safe to buy stocks again?

Over the months I’ve reminded you that us stock options players can make money on either side. We don’t care about the market direction. If you look at my posted track record you’ll see that advice in real world action:

8 of our last 10 positions made money; that’s an 80% winning ratio. All 8 winners were puts. One loser was a call; the other a put.

If you are interested in more information about my newsletter, Complete Options, go to http://www.completeoptions.com/COR-II-WEB-02-20-08.htm

While I’m happy as a clam making money for you I am concerned about two things. This sinking market is worrisome. Sure we’re making money but it’s like the over all market – and the country – is forced withstand this Chinese water torture. This is not good.

Second and on a personal level the market will turn around and some day I’ll be writing that 8 of out past 10 winners were calls; not puts.

We need to know where we are going and when we are going there to keep taking profits.

How will we know when the market truly turns? How will we know when the Bear isn’t just giving us just a head fake?

First you’ll see my recommended calls increase in frequency. And then there will be this:

Volume.

The volume will noticeably change.

Determining when the market hits bottom or a temporary bottom is to measure the amount of panic in the market. One classic line is “only buy when there is blood in the

streets” or when in the pit of the stomach, you feel the world is coming to an end.

This is, indeed, the time to buy. One easy way to measure such panic is to look at two indexes, the CBOE Volatility Index (VIX) and the Nasdaq Volatility Index (VNX).

The CBOE Volatility Index measures the implied volatility of the puts and calls of the S&P 100 Index (OEX). The Nasdaq Volatility Index measures the implied volatility of puts and calls of the Nasdaq 100 Index. The higher the implied volatility, the more expensive the options.

The implied volatility getting extremely high is a sign of panic in the market. Sometimes it takes a few weeks to reach that bottom, but when the VIX and VNX are extremely high, it is time to start entering bullish strategies.

And we will.

One warning, however, the VIX and VNX must be at extremes. I’ll keep my eye that; you don’t need to.

Sorry about that technical jargon. As I said I’m no Yogi.

You’ve hired me and it’s my job to make trading options profitable. 8 out of 10 winning options trades does that nicely.

I’m going to take care of the heavy lifting giving my best recommendations weekly.

Here’s how Yogi would advise you… "When you get to a fork in the road, take it."

That’s all I meant to say – when the market changes direction I’ll get you there.

For more information about my newsletter, Complete Options, go to http://www.completeoptions.com/COR-II-WEB-02-20-08.htm





Posted 07-17-2008 9:46 AM by Ken Trester