August 17, 2017

How I’m Playing the Surge in High Beta Stocks

Over the past several weeks we have seen the S&P 500 (SPY) and Dow (DIA) push lower while the higher beta indexes Nasdaq 100 (QQQ) and Russell 2000 (IWM). As you can see in the table below both ETFs are now in a short-term overbought state. There are a few ways I might play the overbought readings in IWM and QQQ. First, I could buy a put. This would, of course, be a fairly risky trade as it would be very directional with duration working against the position. I would prefer to see a reading above 85 before I truly pursued buying a put. Moreover, due to the directional nature of the trade I would keep my size smaller than a normal spread position. Furthermore, along with an overbought reading above 85, I would prefer to see my … [Read more...]

The Right (and Wrong) Way to Approach Options Trading

I just want to start off with a few random thoughts. Enjoy the post and as always, please do not hesitate to email me with any questions or comments.  September expiration has finally passed us by. It was a rather smooth month until Helicopter Ben stepped in this past Wednesday. Of course, the bulls were certainly more than ecstatic about the results. But, the move was short-lived and as we enter post triple witching we should expect to see further declines. On second thought, Ben's message might have been one of the best things to happen to the bears in quite some time. Couple the aforementioned with the fact that we are witnessing record inflows into funds and you start to get the sense that the bears might have a turn … [Read more...]

The Only Way to Successfully Trade Options

Market Notes More of the same today. We have to remember that the week of triple witching is historically higher and expiration the percentage of bullishness increases even further. But, let's not forget that the week following triple witching is historically bearish. Over the last several days we have seen several unclosed gaps into short-term very overbought extremes. Now we have a few seasonal winds (triple witching) blowing our way as well. I expect to see a reversion to the mean over the next 1-5 trading days and intend on taking advantage with a few more credit spread trades, coupled with the possibility of a directional trade or two. Subscribers stay tuned! The Only Way To Successfully Trade Options  Any time you make a … [Read more...]

Look Out Below? High-Probability, Mean-Reversion Indicator Extremes

Crowder Options: High-Probability, Mean-Reversion Indicator (9-17-13) As you can quickly see in the table below, all of the major indices are currently in a short-term, and let me emphasize one more time, short-term overbought to very overbought state. Typically, when we see this type of reading the underlying ETF experiences a short term reprieve. The one bullish sign is the fact that we are in a triple witching week. Historically, there has been a positive skew, so the bears will have a few obstacles in there way. However, given the overbought state in almost all of the ETFs we follow, combined with unclosed gaps below and strong overhead resistance the odds are currently with the bears, again for the short-term. One thing is … [Read more...]

Options Income Strategies for Monthly Cash Flow

Sell in May is upon us. And if history repeats itself we could be in for a rough summer, especially given the current overbought nature of the market. As I discussed in my last post the phenomenon is real. The average gain over the next four months is a paltry 0.35%. So the question is, how can we as self-directed investors can we increase our wealth or more importantly, receive steady income during the "summer doldrums"? Besides the archaic and capital intensive way of purchasing dividend-based stocks, selling options is the only other alternative, at least as far as I'm concerned. Options selling strategies, allow us the ability to take money out of the market on a steady and consistent basis, but the best part is that we have … [Read more...]

Where Might We Be Headed?

A few random thoughts. The S&P 500 (SPY) has pushed lower for three consecutive days. The net loss a paltry 0.9%. But the intermediate to long-term extreme overbought state that had reached record highs has a lot of work left before it gets back to a neutral state. If anything, we now have another target area for our bear calls spreads and if we get a push into a short-term, yes let me repeat, a short-term oversold state in the market, we just might have to add a few bull put spreads. While the push lower hasn't been impressive I still think we have more room to go. How far? Take a look at the chart below.                   The blue lines mark the … [Read more...]

Bulls Beware…Major Indices at Historic Extremes

Yes, the market has rallied in the face of, well, almost everything. While I have my doubts about the sustainability of the current rally I'm not going to give you the reasons why...because it's only my opinion and as we all know when using a statistical approach towards investing/trading opinions are essentially useless. The Russell 2000 (IWM), S&P 500 (SPY) and Dow (DIA) have recently pushed to all-time highs which has pushed our High-Probability, Mean Reversion indicators to extreme overbought states. Moreover, if you look at the RSI over various timeframes you will quickly notice that most of the ETFs I follow are pegged right now. Typically, when this time of reading occur we see a decent decline short-term decline going … [Read more...]

New Heights…But For How Long?

As we all know by now, the major market benchmarks have pushed to all-time highs. The Dow (DIA) and S&P 500 (SPY) continue to frustrate those of us who sell premium for a living, but given the short-term overbought state I remain comfortable with my current positions. If anything, the current overbought state allows for more opportunities to sell bear call spreads...especially when looking at the longer-term chart below. There is no doubt that the pot odds side with the bears at the moment. Even if we are wrong in our directional assumption, like we have been over the past few months, by using a high-probability strategy a margin of error is inherently created. Basically, you can be wrong, yet still have a profitable trade..that … [Read more...]

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 … [Read more...]

Why I Sell Options To The Speculative Crowd

Trading often appeals to impulsive people, to gamblers, and to those who feel that the world owes them a living. If you trade for excitement, you are liable to take trades with bad odds and accept unnecessary risks. The markets are unforgiving, and emotional trading always results in losses. ---Alexander Elder, Trading for a Living I love Mr. Elder's quote. It embodies the typical retail options trader. Why do you think the most popular options strategy among retail options traders consists of buying out-of-the-money straight calls and puts? There is a reason why out-of-the-money options are so cheap; it's because they are the equivalent of buying a lottery ticket. And gamblers love lottery tickets. Look no further than the hype around … [Read more...]