When the U.S. gets a cold the world catches the flu | Options Trading Strategies

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When the U.S. gets a cold the world catches the flu

What we learned in options today: 17 September 2008

If the title of this article offends some of my international readers as ethnocentric then I apologize but unfortunately it is true. The financial crisis is heating up and there are no signs that it will abate any time in the near term. The nationalization by the Federal Reserve of AIG has left investors wondering where the real value of equities should be and the financial sectors continue to drop as the crisis accelerates. During times like these it makes sense to find more ways to diversify risk and find new opportunities that may be outside the US capital markets.

If we assume that less developed economies are going to have a tougher time dealing with the credit crisis than the US then we automatically have a few interesting places to look for short or put opportunities. In the video, I will show you how to invest in the Russian stock market without having an account denominated in rubles. The Russians halted trading yesterday as they tried to deal with wild fluctuations, which indicates an extreme level of distress. This may be a great time to short calls in the Russian ETF (RSX) or potentially even long puts. Just to whet your appetite for these kinds of trades I have a couple other ideas in the video.

- To learn more about ETFs click here.
- Here is another great article/video about small cap ETFs

Preview: 18 September 2008
Clearly, the market news will continue to be dominated by the credit market. Traders and investors are obviously getting concerned that we may all wind of working for some sort of weird oligarchy run by the Federal Reserve (I am exaggerating... a little) and will be driving equity prices down to a level that compensates them for the risk of being the low rung on the secured ladder. The financial sectors may be some great hunting grounds for short calls right now. I mention short calls because premiums are so high it may be worth the risk to be a seller and long positions seem very overpriced. Of course, short vertical spreads may be a good opportunity as as they have a fixed risk level.

Need help understanding vertical spreads? Click here to see a great series of articles/videos on how they work.

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