ChartAdvisor.com: “…It would be very difficult for the markets to stage an extended rally from this point, so some consolidation or pullback remains likely. If the pullback is tame, it could set the stage for a healthy rally moving forward.”

Schaeffersresearh.com: bullish with a possible near term pullback

ChartAdvisor.com: “The bottom line is that the markets remain quite vulnerable despite the fact they could be close to setting higher lows above the November pivot lows. One factor that may work in the markets favor is that the indexes are starting to get oversold after two weeks of selling. We have been expecting strength towards the end of the year, but the markets have not been making it easy. The indexes remain vulnerable in their current positions and much will be decided in the next week. If the markets dip under their November lows, it could lead to much lower prices. However, any bounce from these levels could catch short sellers off guard and lead to a break above the current consolidation.”

Schaeffer’s has been bullish on CMG and AZO for a very long time.

CMG: Near/At the money monthly covered call (exp. Jan. ’12) yields ~3.67% (or 11% with margin leverage factored in).  AAPL’s monthly covered call (exp. Jan.’12) yields 3.65%, the same as CMG.

CMG’s 2-yr chart beats AAPL.

In conclusion, CMG and AAPL are both good candidates, but CMG seems to be even better.

AZO’s option premium is too low to be of interest to me.

ChartAdvisor.com: bullishly biased.  With the major indexes against resistance, can the indexes breakout to the upside for a rally, or remain stuck in a trading range?  On the downside, watch for November lows if the markets go south.  On the upside, watch if the indexes can break out above the resistance levels.  If neither happens, we are still stuck in a trading range.

Chartadvisor.com: Cautiously bullish.  The markets appear to be trading a the bottom of the new range.

VIX (32): 24, 30 and 36 remain important levels.  The fact that VIX did not penetrate through 40 the last week is good news.  

My trade: I, again, took advantage of last week’s weakness to correct my negatively biased portfolio.

CRM is an interesting case to study.  As I confessed earlier here that I got scared early October when the markets bottomed.  By Oct. 4th (Tuesday), CRM crashed down to ~$113.  I have a large position in CRM with strike of $130.  Although on the chart, CRM reached a bottom level not seen in a long time, I worried that the markets may further deteriorate and that there isn’t much time value left in my $130 call expiring in 4 days, I traded a call spread: bought back 130 call and sold 110 call expiring in 4 days, for a net credit of $3.5/sh.  Part reason of this trade is greed: thinking I could make more on time value.  But, as markets can and will surprise us from time to time, I was equally surprised how fast CRM recovered back to 120-130 level.  Other than CRM, I also sold more naked calls (as a hedge).  Through out the remainder of October and first part of November, the markets zoomed up like a rocket and everyday the market goes up, the margin requirement (for the naked short calls), went up and I was missing all the gains that could have been mine if I didn’t panic and went bearish.  But luckily, this time I didn’t cover those positions for a loss.  I hang on tough and worked to correct my short positions every change I got.  From Oct. 7th, I have been rolling up CRM 110 calls.  All of a sudden, Nov. 17th, post CRM earrings report, CRM went back down to 110 levels.  From Oct. 4th to Nov. 18th, I rolled up CRM calls several times (weeklys to monthly options).  Eventually, I was able to reap all the profits totaling $16/sh, while my CRM shares didn’t change at all.

The CRM story highlights the beauty of my Covered Call + Call Spread strategy in dealing with fluctuating markets.

MID (892.06): is right under the 900 resistance. “The 900 area has been a major speed bump, as this round-number region marked a peak in 2007, and 907 is the index’s year-to-date breakeven. The good news is that pullbacks from this resistance area have been modest, with the MID finding support in the 850-860 zone — which marked a peak ahead of the 2010 “flash crash” and brief tops in November 2010 and August/September 2011.”

SPX (1263): 1257-1260 is the area to watch, “the SPX continues to struggle in the 1,257-1,260 area, which coincides with its 2011 breakeven, its lows in March and June, and a 61.8% retracement of the calendar-year high and lows.”

The COMP (2678.75): 2652 is this year’s break-even point.

VIX (30.04):  24, 30 and 36 are critical numbers.  Speaking of the VIX, we find it interesting that the late-October low in the 24 area was half the August peak at 48, while recent peaks on Nov. 1 and Nov. 9 at the 36 area marked a 50% advance from the trough of 24. So, as we said a few weeks ago, not only is VIX 30 significant, but so are VIX 24 and 36 as the market continues to bounce around critical technical levels. Therefore, if the VIX moves below 30, we would view this as an acceptable level at which you can purchase your portfolio insurance to help ride out any sharp, overnight declines.

Option (monthly) expiration week: the markets tend to be more volatile in expiring weeks.  SPX 1240 and 1250 may provide support, due to heavy put open interest.

My trade: the last week’s market retreat provided me some opportunities to catch up with the short positions that I started in early October (in hind sight, that was a mistake.  I admitted that I normally would flourish when markets panic.  But the late September and early October market movement even spooked me into selling calls at very low strikes.  I have been trying to unwind these short positions now).  Going forward, I’ll continue to re-position my portfolio towards neutral.  With most of my short calls deep ITM, I am not worried about the markets going down.  It’s the rapid upward movement that will add pressure (margin call) on my portfolio before my short positions are completely corrected.

• SPY: support at 122.5
• QQQ: support at 57

Schaeffersresearch.com: also believes the market is bullish, but “three short-term risks to the bullish case include:

• The RUT is still in the red for 2011, and the MID is barely in the green, with the index’s first-half lows just overhead at 920. The fact that the MID is trading around a key round number with historical significance, which also happens to coincide with its year-to-date breakeven, is perhaps the No. 1 risk from a technical perspective. It will be of importance for the MID to make a more convincing move above 900 in order to squeeze more shorts.
• Another technical risk relates to the QQQ, a benchmark driven by many large-cap technology stocks. While outperforming impressively, it still has not taken out the 60 level, which is half its all-time high and has marked multiple peaks in 2011.
• A third risk is that much of the short covering related directly to the huge build-up of put open interest in exchange-traded fund (ETF) and index options is likely expended, as heavy put strikes that will expire in a few weeks are far out of the money and less sensitive to market gyrations. That said, short covering is still possible on individual equities, and those that are highly shorted with a strong technical and fundamental backdrop are likely to lead if the market continues to rally.

Chartadvisor.com: no update this week (yet).

My take: The last 2 weeks have been equally surprising as the last 2 months: the markets shop up straight from the trading range bottom to the top.  Investors have as if forgotten all about the fear of European debt problems and the double dip recession in US.  The end of Sept and early Oct bottom was truly scary that I sold some naked options (more short options than long stocks, in a negatively biased covered call, for lack of a better term).  Naturally these net short calls are hurting my return on paper.  But unless stocks shoot straight up and never look back again, I use this strategy as an added layer of downside protection.

Ratio of my short/long  positions (always short calls and long stocks)

BIDU: 1.37/1, i.e., for every 100 shares of bidu that I am long, I am short 1.37 contracts of Bidu calls (strikes at 110, 115 and 120).

CRM: 1.083/1, with strikes at 110 and 130.

FFIV: 1.32/1, with strikes at 70, 75, 77.5, 80, and 82.5.

LVS: 1.09/1, with strikes at 40, 42, and 45.

MCP: 1.16/1, with strike at 35.

NFLX: 1.5/1, with strike at 110.

PCLN: 1/1, with strike at 450.

SLW: 1/1., with strikes at 30 and 33.

What’s my plan of trading: Most of calls are in the money now, and the market is overall bullish, so weekly options rolling up (i.e., buying the expiring ITM call and selling next weeks call of same strike for a credit) is my overall plan.  This strategy gives you the most ROI.  Unless the market goes up and never comes back, my negatively biased covered call should continue to generate time values on a regular basis.

ChartAdvisor.com: “The market is in a very dangerous position right now and traders should be looking to protect their capital rather than gaming a bottom.”  This site is generally more conservative and analyses fewer parameters than the Schaeffer’s.

VIX: 41.25

My take: It wasn’t a surprise that the market sold off last week, although the degree of the sell off is still a bit unsettling.  I think the probability of a bounce back from here is greater than going further below.  I’ll continue to hedge with short calls, although I will use OTM calls (which leave room for a rebound).  The key to investment success is that I look at the long term return.  If you need that money now, then stay out of the market.