Smoking Herb ~ The Risk Averse Alert

Thursday, January 20, 2011

Smoking Herb

Put this in your pipe and smoke it...

What's that Herb? A momentum-driven market? Lack of conviction? Wha, wha, wha, weak hands?

Conditions conducive to collapse, indeed.


Yet with a move over the past two days seeing increasing hedging of long equity exposure via put options, a broad-based collapse likely will be delayed. This sets up for yet another round of premium scalping selling covered calls, as well as creating conditions wherein last week's call option buyers might exercise and relieve the writers of those contracts of equity whose desired offloading at this pace might require another century.

Pity time is running short for those weak hands whose credit market exposure is likely to make necessary in the not-too-distant future the wholesale dumping of equity positions for the sake of desperately needed capital that, no AIG bake sale, nor Facebook private placement can generate.

Fast Money
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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