July 28, 2017

Post-Expiration Blues?

Yesterday, I wrote about the likelihood of a period of short-term weakness (1-3 days) that would follow the retest of new highs set earlier in the week in the S&P. Well, the anticipated weakness came today and could potentially continue Monday. The trading day following options expiration is historically weak and next Monday, on a historical basis, is no different. Since 1985 the 15th trading day of July has only finished higher 38% of all days. Given the near oversold levels in the major indices we follow I would be hesitant to take a position at this point, but if the market does indeed move lower into oversold to very oversold by Wednesday we could have a decent set-up. Why?

Well, the close Tuesday officially ends the mid-July weakness and Wednesday brings a very bullish seasonal day with 71% of all those days (since 1985) advancing. It could be convenient timing indeed and one that could bode well for our ETF Extremes strategy.

As we stated yesterday we were hoping to get into a position today, but with the futures down at the open and the sharp fall that occurred immediately following the opening bell we did not want to chase the prices down. Again, we will stay diligent and abide by our guidelines that have brought us gains that have outperformed the market on a consistent basis, which is the ultimate mission of our newsletter service.

As I mentioned yesterday, www.pro-option-profits.com, a wonderful site that keeps tabs on all options-based newsletters, follows our strategies and even with the lack of signals recently in the ETF Extremes it still consistently ranks as one of the top options strategies. Consistently is the keyword here. 

Furthermore, we are only in a position approximately 15% of all trading days so we do not have to endure the extreme volatility that occur in most other options strategies. As I always say, ad nauseam, this is a marathon and not a sprint.

As for our Iron Condor strategy, SPX settled around 1551 which was a little less than 2% below our short call strike. I mentioned earlier in the week, when the market was 1555 and threatening to push higher, that we had decided it was best to take our profits off the table for a 10% gain for the July cycle eliminating any risk of the underlying SPX breaching our short call strike. It was certainly another nice cycle for the Iron Condor strategy.

Our switch after April to trade only four weeks out (wait a week in a five week cycle) while widening our range significantly has proven successful so far. If premium continues to soar like it has over the past few months opportunities to widen the range even further (which decreases the risk of the underlying breaching our short strikes) should be plentiful. After a few years of low premium in the major indices, premium has finally made its way back and sellers of premium should rejoice.

On Monday we will attempt to initiate another position in the SPX Short Iron Condor strategy which I will discuss in the Expiration report due out this weekend (paid subscribers only). The VIX shot up 1.72 today so premium should be very nice as we move into post expiration which should allow us to widen our range even further.

Also, please send me your comments and suggestions on the new site. We are ecstatic about the new site. Success has been our friend and we intend on keeping it that way for a long time.

Overbought/Oversold levels for July 20th, 2007

  • SPY – 44.0 (neutral)
  • IWM – 30.9 (neutral)
  • DIA – 51.8 (neutral)
  • QQQQ – 66.2 (neutral)
  • GLD – 88.3 (very overbought)
  • OIH – 74.5 (overbought)

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com