April 24, 2017

Short-Term Reprieve Makes An Appearance….

I am going to keep it very short tonight.

The S&P 500 (SPY) took its largest tumble of the year today after reaching an extreme overbought state. My recent directional assumptions haven’t played out as planned, but after today all of the positions in my two options selling strategies are in very good shape. In fact, I should be able to take a few profits if we see a short-term continuation of this reprieve.

And that’s the beauty of credit spreads.

You can be completely wrong in your directional assumption and still come out on top. It’s all about the probabilities…creating a large enough margin of error (through the selling out-of-the-money credit spreads) to absorb a continuation of the move you are fading.

But now that all of the major benchmarks are back in a neutral state, will we see a continuation of today’s pullback? I still think we are headed back to the gap from New Years, but what do I know.

My plan going forward is to use the recent highs as an area to sell more bear call spreads. And if we see short-term oversold readings in the near future my intent is to sell some bull put spreads. It might be tough to sell more spreads in March due to the low implied volatility. But, if we see the pullback continue over the next few days we could get the opportunity to turn our bear calls spreads into a few iron condors. Only time will tell.

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If you are a believer in a statistical approach towards investing please do not hesitate to try one of my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

Kindest,

Andrew Crowder