A bounce is due, no, I think overdue. We have all realized that Mr. Market can remain irrational longer than one can remain solvent. So though the probability of bounce is high, don’t count on it for long term bull market till there are sign of economic improvement. The primary trend is bearish, as clear as that could be.
However, this market is bringing its own unique rewards. I would like to compare it with insurance business and let’s apply their business model to option trading.
As the risk is rising, Options’ premium is rising as well and as an option seller it is to our advantage. So why not start building positions that are going to give regular income stream. An example of that strategy is called Covered call (Covered Call is an option strategy in which a call option is written against long stock on a share-for-share basis).
I earlier shared a real trade example of covered call on SRS, where I was able to keep full 17% of profits for 4wks. I again opened it this month and have done a few changes to maximize my yield. Of course I can’t expect to have 17% month after month, but even 5-7%, month after month via credit generation from short roll over, can result into substantial gains. Alright, Ultrashorts are not for weak heart. Let’s move on to a company like Caterpillar (CAT).