Most of the highly- liquid ETFs I follow here at Crowder Options have pushed into a short-term overbought extreme, with several actually reaching a very overbought extreme.

Typically, when we see this type of price action, that is an upside gap into overbought to very overbought territory at strong overhead resistance, a short-term reprieve is to be expected. However, if you recall, I expected to see  a reprieve after last Tuesday’s large upside gap, but the gap in the tech-heavy Nasdaq 100 (one of my positions at the moment) has yet to close.

But, now that we have seen the all of the major ETFs, SPY, DIA, IWM and QQQ fail at major resistance levels (as witnessed today) the probability of a short-term downside move has increased. Again, couple a failure at strong overhead resistance with short-term overbought readings in over half of the ETFs I follow and the probability increases even further. And, if aforementioned bearish leanings weren’t enough, the market is entering a period of seasonal bearishness.

IF that wasn’t enough talented sentiment analyst Jason Goepfert of Sentimentrader.com recently stated, ”

Mostly what we’ve looked at over the past couple of weeks has been either market-neutral or positive.  We’re starting to see some negatives now. We looked at one of those yesterday, the ratio of speculative Nasdaq volume to NYSE volume.  That’s a minor indicator, but it’s at extreme levels.

Another negative is the spike in the OEX Put/Call Ratio.  This means that traders have been busy trading put options on the S&P 100 index, the largest companies in the S&P 500.  These options are normally traded by more experienced traders. With that put/call ratio high and the Equity Put/Call Ratio low, the spread between the two is at an extreme.  This is kind of a poor man’s proxy for smart money (OEX options) versus dumb money (equity options). Such a wide disparity between the two has not been a good sign.”

Combine all of the aforementioned and you can quickly see why I expect to see a short-term decline that closes the 1/3 gap.

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I am an options trader. I trade strategies based off probabilities. Nothing new here. I just want to teach people how to trade effectively and profit by using my options high-probability options strategies.  For successful investors/traders, its about your strategy, your logic, your process and nothing else.

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According to Jason Goepfert, Tuesday was “the best day in 30 years.”

“The buying stampede resulted in just under 98% of all volume being transacted in stocks that were positive on the day.”

The highest ever.

Historically, after large Up Volume days the market consolidates and I would expect that this time would be no different.

All of the ETFs I follow have pushed back into neutral territory and several of the major market benchmarks are very close to a overbought state. With that being said, I intend to add a credit spread in the Theta Driver strategy tomorrow and depending on the price action tomorrow I might just add a position in the High-Probability, Mean-Reversion strategy.

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Now what?

The market gapped significantly lower at the open and never looked back. Now all of the ETFs I follow for the options strategies are well within a neutral state. The only ETF that has pushed into a short-term oversold state – TBT. And if the RSI (2) of TBT moves even lower tomorrow I will most likely take another position. Other than that I will be sitting on the sidelines waiting for the next set-up.

According to Jason Goepfert:

“The Beta Chase Index jumped above 6 on Monday, very unusual for a down day in the market.

Part of the reason was that those traders continued to move into the Nasdaq 100 (NDX) fund, pushing the Bull/Bear Ratio there to the highest ever (dating back to 2000).  There is now 50 times more money invested in the long NDX fund than the inverse NDX fund.  That is not encouraging.”

As for our Theta Driver position, we are well below the 130 strike and the trade looks to be another good one going forward. I will be placing another trade, this time for the December cycle over the next 1-5 days. Subscribers stay tuned!

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My thought is that we will close the gap in IWM, DIA and SPY that occurred last Friday. This would take the major market ETFs to $69.73, $115.77 and $122.10, respectively. If we happen to close the aforementioned gaps then the next move could take the major market benchmarks down to close the gap from 10/10. A move like this over the next few weeks would lead to extraordinary gains in the strategy. A move to close the gap from last Friday could lead to us to a break-even or possibly, yes possibly a slight gain for the month. The chances for the latter or not likely, but that is okay. This is a long-term strategy and the occasional losing month is expected. Remember, this is a marathon and not a sprint.

As for the Theta Driver Options Strategy it continues to chug along nicely. I am enthused by the wave of reviews by all of you. I still have a few spots left so if you are interested give it a try. It is free for 30 days. What do you have to lose?

If you haven’t already, don’t forget to sign-up for my :

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If you haven’t already, don’t forget to sign-up for my :

High-Probability, Mean-Reversion Options Strategy : Free 30-day trial

Theta Driver Options Strategy (limited room available): Free 30-day trial

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I will be back with my regular blog posts next week. Thanks for being patient. Hey, at least we have some really great trades to talk about. Both strategies continue to move onward and upward and that is the most important of my service. Actionable and profitable trades. So far, so good.

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The market kicked up higher at the open and never turned back. As a result, I did not make a trade in either of the strategies today, but tomorrow is a new day and there are still quite a few viable trades out there as you can see in the High-Probability, Mean-Reversion chart below. So, again, subscribers stay tuned.

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• VIX Crush – Fed Stimulus
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Yesterday, I posted a WSJ interview with Mark Cuban. Mark had a few very insightful ideas for the public including “buy and hold is a crock of s#$!” and “diversification is for idiots.” I definitely agree with Mark’s first statement – buy and hold is no longer a viable strategy. However, I think he needs to expand on his last statement. While I do agree that diversification in stocks is well, not useful when applied in the typical manner. Because most over-diversify. And quite honestly, I don’t bother investing in stocks. It ties up way too much of my capital and I can create far better statistical advantages using options rather than trying to guess how much a stock will appreciate over the long-term. It just doesn’t make sense to me. Diversifying options strategies does make sense to me. I will go into great detail in a future post.

Another complaint stems from a recent call by a I listened to by a small financial services firm. They were touting guaranteed returns with of course no risk. Really? Seriously? Their answer – fixed annuities. I had to laugh. And then I started to get upset. They were preying on the fear that the financial media has created over the past few weeks. They were taking advantage of hard-working, worried investors who lack the knowledge of how to effectively invest their money.

They went on to boast about how they were taking the steps necessary during these times of crisis by moving into more defensive stocks, etc. This was the best way to create a conservative portfolio. The insanity went on and on.

How about this – as an effective money manager learn how to appropriately and effectively use options to hedge your risk. The fact is, most active money managers have no idea how to use options other than buy out-of-money calls or puts. They don’t realize that times of crisis lead to above normal volatility that creates high options premium and the opportunity to make lots of profits. Why? I don’t know. Options are not that difficult. Yes, it takes a little hard work, but why not take the time to learn how to use options on your own. You are certainly not going to find an abundance of money managers who know to use options in an appropriate and effective way. So why not take the leap and learn.

Oh yeah, and what about the notion of cash is a position. I think we all know my thoughts on this topic.

People are starting to realize the benefits of options. They are catching on. I truly think the next 10-15 years are going to be revolutionary for options. I have already witnessed an enormous change in the options industry thanks to the likes of Tom Sosnoff, Thinkswim, Optionsxpress the CBOE. These are just a few of the major players trying to bring options to the mainstream and thankfully they are winning the battle.

Anyway, I have so much more to say, but I am not going to make this post long-winded as I always have tomorrow to rant.

Quick Thought on the Options Strategies

This is exactly how diversified options strategies should work.

While the High-Probability, Mean-Reversion Options Strategy sits idle, patiently waiting for short-term extremes, the Theta Driver Options Strategy is taking advantage of time decay.

It has taken some time, but I now feel as though I have created the perfect blend for my style of options trading. 

By employing both strategies I enjoy the benefits of trading a short-term, speculative options strategy alongside an options income strategy. Both are simple options strategies, yet very effective. Now that the High-Probability, Mean-Reversion strategy has hit a slow patch with no true signals over the past three weeks, you can start to see the true benefits of the Theta Driver strategy. Collecting premium, taking advantage of time decay by selling credit spreads offers income while I sit patiently for a short-term extreme to enter the market in one of the ETFs I follow for the strategy.

I might add one more options strategy to the mix, but for now I want to focus on teaching the High-Probability, Mean-Reversion Options Strategy and the Theta Driver Options Strategy.

Theta Driver Options Strategy

My first trade in the Theta Driver (trade entered on Monday 8/15) is already worth 7.5%. I will probably take it off if the market moves lower to take advantage of the growing premium created by increased market volatility. If I can buy the spread back for $0.05 or less over the coming days I will. I am always for locking in a profit and taking risk off the table. Especially, if better opportunities are available. Subscriber stay tuned!

High-Probability Options Strategy

More and more extremes have entered the market and a trade could be in the works over the next few trading days. If I do place a trade I will cut back my position-size. There are way too many uncertainies out there right now. And, of course, I want to see true short-term extremes before even thinking about placing a trade in this environment.

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