Option Investor
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A neutral bias\?

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Are you a bull or a bear? That's the question I got from a subscriber last hour when I stated I had a "neutral" bias toward the S&P 500 (SPX.X) until I got some type of break in direction. "I want an answer!" exclaimed the subscriber. "I can't trade a neutral bias!" Why not is my question? We've outline option strategies for a neutral bias that gives the trader/investor an opportunity to make money when a bias is neutral. We've taught techniques of account management for a neutral bias. There's lots of ways to position an account for a neutral bias.

Trading stocks? Here's a snapshot of the PremierMarkets.com current play list. The bias is slightly positive, but I think reflective of a relatively "neutral" bias.

Hypothetical $5,000 investment in each profiled stock

A hypothetical investment of $5,000 each, into the current active play list on premierinvestor.net would look like that above. The "bias" would be the resulting cost of the portfolio. Right now there a trader/investor would have initiated approximately $45,000 worth of capital, with $25K in bullish positions and $20K in bearish positions. Net bias would be +$5K. Is it possible to make money by being bearish and bullish at the same time? Yes! Is the above portfolio "overly bullish?" No, just fractionally bullish.

What does the above screen capture say about the trader's current feel or understanding of the market? I'd say pretty good (I didn't pick all of the play selections, so I'm not being too self serving).

Unless the above trader is wrong in his/her account, we can look at the portfolio to get a feel for the MARKET's view of our play picking ability and analysis of the market, or at least the stocks in the portfolio. So far, the market agrees with our portfolio as indicated by the TOTAL filed. The MARKET seems to agree with our BULLISH stint as indicated by the SUBTOTAL section of top 5 positions (bullish picks are at top of portfolio). The MARKET is basically (neutral) as it relates to our ability to pick BEARISH plays at this time as indicated by the 0% SUBTOTAL gain/loss for the bearish selections.

More Neutrality, but skewed bullish!

There are several options strategies for a "neutral" stance upon initiation of the trade. On October 8th, we outlined a November straddle in shares of Microsoft (NASDAQ:MSFT) and have been following that trade in our commentary.

The above strangle was profiled when Microsoft (NASDAQ:MSFT) "software" was trading near what we thought was a pivot point of $57.50. Since the there was not a strike of $57.50 available in the options market, we opted for a strangle with the $55 puts and $60 calls for November expiration (Friday, November 16th). Current status shows that the calls (bullish) have appreciated, while the puts (bearish) have lost money. Net effect has been a loss, but there's still time for this one to play out. "Bias" here is to the upside as the winning side of the trade is from the call portion.

Hmmmm.... maybe I should be more bullish? No problem, but I want to see the S&P 500 (SPX.X) get above the 1,100 level and get above that falling 50-day MA. There's definitely some "hint" of bullishness from both of the above

Hey! In the premierinvestor.net portfolio, I see a nice bullish gain in shares of SYMC "software" and I see the call side of MSFT "software" is showing a positive gain. Something must be going on in software and that deserves a bull's attention!

Jeff Bailey
Senior Market Technician
Option Investor

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