Okay, let's get into trade selection. Trade selection is really part art, part science, as always. We want to always trade with confidence. What we're going to do is that we're going to take a look at some of the index options that we can put positions on, and begin building our portfolio.
That's what we really want to focus on, is the idea of building a portfolio. It's not just putting on a position here, and a position here. That doesn't really make any sense. What we want to do is create a portfolio of positions that really helps us achieve our objective of generating monthly income from the markets.
In our test account here, what we want to do, is we first want to look at the indexes that we want to put positions on. Normally, what I do is that I take the EEM, which is the I-shares merging markets. Let's take a quick look at a graph of it.
This is the I-shares emerging market ETF. It seems to be trading very well for us. It tends to trend in a pretty nice pattern. It tends to stay within channels, here. Like I said, I'm not a big technical analysis guy, but what I like to do is see support and resistance point, and I like to check channels over time. This has been in a channel, now, since back in early October. It's just stayed in a downtrend channel, here.
These blue lines are a potential uptrend channel that it might be following, but it did hit this resistance right here, at the old channel line that I've got at the upper resistance. We may continue to see it trend lower. On the other hand, I've got this blue uptrend channel, just in case it changes directions.
As you can see right now, it hit a high of around 144. It started to drift down here, over the last 4 or 5 days. Now, how would we play this? You can see that it's been in a downtrend. It's been following this channel pretty closely. It's dipped below, it's come back up, and it's hit the upper trend line now, at four points. There's a solid downtrend in effect.
It's also below its 200-day moving average. It got above it, now it dropped below it. That is a strong indication that it may continue lower.
How do we play this, then? Well, in most cases, I like to put on double calendars as my opening position. A double calendar with calls just above the current price, and puts below the current price.
At this stage, because it's on the upper quarter of this channel, you might want to give it a little more room to the downside. If it does start to follow this blue line, and it starts to follow this upward channel here, I want to try to find puts right around the 132.50 level. This is the edge of the lower channel line that I have already set up here.
We've got 1 point on it, so it's not really a confirmed channel line yet. On the upside, you have 3 points where it's hit, and it looks like it's trying to follow it.
