This Week We're Knocking Down a 13% Return with an 89% Probability of Success!

Welcome to expiration week and our last newsletter for the December/January credit spreads. We’ll select three new plays this week before moving on from January to February. Again, as with every expiration week (not including weeklys), let’s consider closing out any plays that have already earned most of our credit.


As mentioned in earlier editions, whenever a credit spread has less than $0.05 remaining, that’s a great time to close out the trade and “Take the Money and Run!”

From about Wednesday on, the market makers often start widening spreads plus gamma risk increases so either Tuesday’s close or Wednesday’s open would be a great time to exit our plays.

Finally, there’s always the “option” to just let them ride into expiration. The advantage here is that you don’t have to pay any more commission to close your plays. They’ll just expire worthless, and you'll keep all the credit--a nice position to be in.

The Markets and How They Affect Us

Since lower volatility is our friend let's take a quick look at what is affecting market volatility and how it might affect our positions. International market volatility for new debt securities continued in the 3rd quarter after the initial shock of the European sovereign crisis sidelined investors in the 2nd quarter as reported from the Bank for International Settlements yesterday.

Back in May, when the crisis in Greece first flared up, volatility increased to a point where, for about 6 weeks, there weren’t any significant issuances of debt securities.

However, investors eventually breathed a sigh of relief by the government’s announcement of a Greek bailout fund and the European banks’ stress-tests. And with that, the primary markets were reopened but not to every bank. The larger banks of Ireland struggled to raise funding in the international debt securities market last quarter.

As it turns out, the Irish banking sector became the root cause of the country’s problems and Ireland became the second European nation to ask for international help due to the crisis.

As debt concerns continued to keep interest rates low across the globe, corporations took advantage of these low yields to issue some $140 billion during this time which was the highest amount since the 2nd quarter - 2009, when companies sought to sell

Closer to home, oil options volatility weakened on Friday after China acted to counter inflation which could possibly slow their economic growth and demand for the largest energy-consuming country in the world.

Implied volatility for ATM options with March expiration was down along with futures and crude oil deliveries for January after China required lenders to increase their financial reserves.

What are the Secrets of the Week?

We have three new trades this week, two on equities and one on an ETF, so let’s get started.

You can get in on this week's trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws

Stack the Deck on Every Trade,

Robert

To all our subscribers, God Bless and have an awesome trading week!