July 26, 2017

Still Range-Bound Near the Top

Keeping it short tonight. After the worst day since November, the market was able to get back on its feet and rally back near the highs set a few days ago. I am still comfortable selling bear call spreads above the recent highs and the chart below from my esteemed colleague and friend Tim Knight shows why.   As you can see we are touching a long-term trend line and given the recent price action around this level I expect to see a short to intermediate-term pullback. But the most important aspect of this long-term trend line is the fact that I am able to sell options well above this level to give the margin of error that creates a high-probability trade. Yes, it's that simple. If you haven’t, join my Twitter … [Read more...]

Further Declines Ahead?

We finally saw a break in the market today. On the 26th I stated a market reversal looks imminent.  The decline today has the market back at that pivotal area. If that breaks we could see $146.50 in DIA and possibly a fill of the New Year gap. The gap fill is going to happen, the problem is we have no idea when. I am not one to play guessing games with the market. An assumption with a high-probability strategy wrapped around it  is more my speed...and the current market could be giving us some opportunities going forward. We now have a solid top or area of overhead resistance, which allows those of us who sell options premium a decent guideline over the short- to intermediate-term. Selling options above the current overhead … [Read more...]

A Reversal Looks Imminent

Is the rally over? Or will we see a continuation of the current rally? If you believe in mean-reversion, it's hard to deny the overbought extremes that currently reside in the market. Just look at the SPY chart below.                                 As you can clearly see, over every time frame the major market benchmark has reached an extreme overbought state. If the SPY chart isn't enough evidence to at least make you question the sustainability of the current rally, just take a look at the VXX … [Read more...]

Several ETFs in Short-Term Extremes

Most of the ETFs I follow for the High-Probability, Mean-Reversion indicator have pushed into an overbought to very overbought state. But, what is most interesting is the extreme overbought readings over the shortest of time frames I follow. For instance, readings in IWM and SPY are in the high 90's...an extreme we don't often see in the benchmark ETFs. As a result, we are finding more and more opportunities for bear call spreads. The only downside is the low implied volatility., but one way to combat low volatility, particularly if you are expecting a quick fade of the current trend is to take use a bear call spread with a lower probability of success, say in the 60-70 range. This will allow you to bring in more premium and if a move to … [Read more...]

January Options Expiration is Upon Us

The market continues to soar. Have you seen the new all-time highs in the Russell 2000 (IWM)? But the small-caps aren't the only sector roaring right now, Consumer Discretionary (XLY) , Healthcare (XLV) and Real Estate (IYR) are all in a short-term overbought state. As a result, all of them are perfect candidates for out-of-the-money bear call spreads. I will talk about a trade or two tomorrow on the blog, but today I wanted to let everyone know that I will be sending out invites to my strategies over the next few days. Yes, it has been a long time coming...finally it's here. If you have already contacted me about my strategies, don't worry, you will have first dibs. Those who have not contacted me I will be sending out the … [Read more...]

It’s All About the New Year’s Gap. Will it Close? If so, When?

The small caps,  as seen by the Russell 2000 ETF (NYSE:IWM), remain the most resilient of all sectors within the market. The Dow (DIA), S&P 500 (SPY) and Nasdaq 100 (QQQ) have pushed back into neutral states. Since the upside gap on 1/2 the major benchmarks have struggled to advance. The large gap underneath seems to be weighing on the market which makes me more apt to lean towards the bearish side until the gap is resolved. Of course, as we all know we could see another push towards the upside, but again, with out-of-the-money credit spreads I can create a margin for error that allows me to be absolutely wrong in my assumption, yet still profit from on the trade. It all comes down to probabilities. If we are able to go out to the … [Read more...]

Options Strategies and the 85% Probability of Success

Quick note: Well, I am finally back into the swing of things. It was my hope that I would have my strategies launched last week, but I have decided to wait until next weekend. The response has been overwhelming, more than I ever imagined. As a result, I will have to be somewhat selective in how many subscribers I choose for each strategy. As I stated weeks ago, those of you who have emailed me will have the first opportunity to join. I will also allow emails to continue throughout the week. So, if you are interested in one of more of my strategies please email me and I will send you the initial invite. Once I have sent the initial email out, I will reevaluate my subscriber count and then open it up to everyone else. This will occur … [Read more...]

Thank You Fiscal Cliff……The Race is On!

Can you feel it? No really, can you feel it? The bullish sentiment is overwhelming at the moment. Two days and roughly 5% higher will do that to an investor with a bullish bias. Naturally, a contrarian finds times like these ideal bearish scenarios over the short-term. Admittedly, I fall into that camp. The move since the sell-off last Friday has taken the S&P 500 (SPY) from $140.03 to $146.06, for a 4.3% return...thank you fiscal cliff. Obviously, the push higher has left the S&P 500 in a short-term overbought state. But the major market benchmark isn't the only short-term overbought ETF in the market. Every major benchmark ETF  that I follow in my strategies have pushed into a short-term extreme with the small-cap Russell … [Read more...]

Time For a Few More Bear Call Spreads (SPY)?

Today's price action had the bears extremely excited for most of the day. While most experienced traders expected some support at the 1400 level I am not sure that anyone was expecting the bounce that we witnessed during the latter part of the day. I am still somewhat bearish. My thought is that we will eventually see the two SPY gaps (11/19 and 11/29) from November close over the coming month. But as we all know there are no guarantees. No one holds the holy grail to trading. Which is why I always make trades with a margin for error. Credit spreads allow me this benefit...and since I have a short-term bearish view a bear call spread is my strategy of choice. What is Bear Call Spread? A bear call spread is a credit spread … [Read more...]

The Only Way to Successfully Use Options Over the Long-Term

Any time you make a bet with the best of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose the bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet. -David Sklansky, The Theory of Poker As I always say, investment success comes from process. Let me explain. Back in my early 30s when I was privileged to live in sunny Flagstaff, AZ, I would take the reasonably short drive to Las Vegas so that I could make one the best bets in the gaming world. For those not familiar with the game of craps, the free odds bet placed behind an opening pass line bet … [Read more...]