Each month during options expiration week, the Covered Calls Advisor re-calculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).
The current Market Meter Average of 3.50 (see blue line in chart above) is identical to the 3.50 of last month. The 3.50 is exactly on the inflection point between Neutral (range of 2.5 to 3.5) and Slightly Bullish (range from 3.5 to 4.5). Since the most recent rating has been Slightly Bullish, this rating will be retained unless the Overall Market Meter average falls below 3.50, in which case the overall sentiment would change to Neutral. All eight of the factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month.
As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to "on-average sell 2% out-of-the-money covered calls for the nearest expiration month." So with the September 2011 options expiration this week, newly established positions for October 2011 expiration will be established in accordance with this guideline.
Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.
Regards and Godspeed,