Ken Trester

Options Tactics (2/19/08) -- Playing Our Aces

by Ken Trester   02/19/08

Maybe Not the Best of Times, But Far from the Worst

Dear Fellow Options Investor,

One of the most famous lines in all of English literature opens Charles Dickens' novel, "A Tale of Two Cities," which chronicles the 18th-century French Revolution. The opening line of the novel, "It was the best of times; it was the worst of times," also quite appropriately describes the first chapter of 2008.

Let's be certain of this: Modern times are not as nearly as dramatic as the years surrounding the French Revolution. After all, the peasants were running around Paris, chopping off the heads of the nobility.

If heads roll in Washington, it will only be figuratively -- and in spite of the current recessionary woes, we are far from the worst of times.

In fact, a few months of simply slowed growth by a few fractions of a percentage point will hardly be noticed (if at all) by anyone. Frankly, it's less than a bump in the road.

But markets do not react rationally, and once you understand that, you understand all. The market behaves more like the French peasants from centuries ago chopping off heads with glee and abandon.

I'll be straight here -- even with a recession, we are far closer to the best of times than the worst.

Yet, this market is behaving much like the roving bands of peasants who spot a well-dressed citizen and chop off his head, only to discover that he was actually one of "the good guys." Oh, so sorry, monsieur.

That's the market in a nutshell -- selling to punish one day, and buying back the next to reward.

As option traders, we need volatility to jumpstart our positions for double- and triple-digit winners in a few days or weeks. So high volatility means it's the best of times. Without volatility, we're treading water, because without it, trades don't move.

That being said, the current volatility is pure chaos. It is peasants chopping off every head in sight only to realize a day or two later that it was mistake.


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Ken Trester not only provides two high-potential, easy-to-execute options trades in his Fast Options Profits service each week, but he also stays in touch with you with timely profit alerts to let you know when to hold 'em, when to fold 'em, and when to cash out for BIG returns.

Click here to get started on your way to Fast Options Profits!

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PLAYING OUR ACES

This market mayhem once again forced our hand at Fast Options Profits to break one of our own longstanding rules.

On Jan. 23, we broke a rule and took profits early on two positions well below our target prices. Instead of taking full triple-digit profits, I decided that the market had hit a key reversal and we risked leaving some money on the table.

So, I alerted my readers to sell our Pactiv Corp. (PTV) puts for a 44% gain in less than three weeks and to sell the Broadcom (BRCM) puts for a 12.5% profit.

Although I had higher expectations for these plays, it was hardly the worst of times for us.

While most stock traders were taking huge losses, we took two modest gains (by options standards). Plus, earlier that week we had closed our JDS Uniphase (JDSU) Puts for a 114% gain.

"A profit is a profit," and that maxim trumped our longstanding rule of waiting for our trades to hit their target prices. I'm dead certain subscribers were much happier with three double-digit winners than the losses sustained by nearly every investor in the world at the time.

From time to time, I may knock off a few double-digit winners, but you can be certain that once a sustained direction is defined (up or down), we'll be making those triple-digit profits in three weeks or less.

A MUCH HAPPIER ENDING FOR OPTIONS TRADERS

Just for the record, "A Tale of Two Cities" closes with the main character awaiting his execution. As he waits to lose his own head, he utters these also very famous lines, "It is a far, far better thing that I do, than I have ever done; it is a far, far better rest that I go to than I have ever known."

I'm not looking to rest -- I'm looking forward to sustained market direction, volatility and triple-digit winners. The heck with resting -- there are profits out there to make, and lots of them!

Yours for Maximum and Fast Options Profits,


Ken Trester
Editor
Options Tactics