April 26, 2017

Will Our Expectations Come to Fruition?

We all were witness the so-called Summer's Gap that occurred at the open this morning. Unfortunately, for the bulls, the short-term very overbought state was too much. All of the major indices sold off near the close. But wait, not all is lost. The Overbought/Oversold indicator indicates that we still have quite a few short-term extremes left in the market. The most notable are GLD and SDS on the oversold side of things. DIA and XLP reside in opposite territory as they are both firmly entrenched in a very overbought state. I put on a few trades today for my subscribers with one of the aforementioned ETFs included in the mix. It was just too good of a spot to ignore a trade...a gap higher into a short-term overbought state while … [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...]

When Trading Options Use Probabilities to Your Advantage

I am often amazed by the  lack of common sense when it comes to investing. Investors seek the best possible information, unfortunately most turn to the wrong sources. For starters, turning on the television for investment advice, in most cases, is a big no no. Yet, how many people listen intently to the daily drivel coming out of screaming mouths on CNBC. Investors, particularly traders, should know that every trade spouted from these sources have a 50% chance of success. Add in transaction costs and the probability declines further. Yet, the majority of investors and traders take this approach, mostly because they aren't privy to any other form of investing. Self-directed investors aren't aware that there are strategies based purely … [Read more...]

Major Indices Remain in a Short-term Overbought State

Random Thoughts Three of the top five most short-term overbought ETFs that I follow are major market ETFs. DIA, SPY and IWM (in that order) are currently "very overbought" on a short-term basis. The RSI (2) of SPY and DIA are roughly 96 and above and IWM is not far behind at 92. As I write this the futures are higher and if we open at these levels we will see another test of the recent overhead resistance that has plagued the bulls since last Wednesday's historical surge. As I stated yesterday with DIA and SPY in short-term extreme overbought states coming off huge gaps to the upside and battling with strong overhead resistance the probability for a short-term reprieve is high. However, as we all know, stranger things have … [Read more...]

Back in a Neutral State. Where Now?

The market moved decisively lower today and while most think it was just a normal decline I think there could be more ahead. Tim Knight of Slope of Hope recently stated that he thought the 1223 area on the /ES would act as a strong area of support and I think he is correct in his assumption. If we break that area then I would expect to see a decisive decline as we head into December. The true test will be once the market reaches its next short-term oversold state. If the bounce is violent then, yes, I would expect to see another push higher into November expiration. But, if the the bounce is weak, then bears should have good reason to rejoice as another swift decline could be in order. If you haven’t already, don’t forget to sign-up for … [Read more...]

Short-Term Reprieve Occurs – Will It Continue?

The short-term reprieve that I mentioned in the Free Weekend Report (Sign-Up Free Here) occurred today and by the looks of it we could see more downside tomorrow. As I mentioned in the report "as for the current technical picture, the all of the major indices and most sectors are in a short-term "very overbought" state as we head into the week of options expiration. Not only are the major benchmarks in one of the most short-term overbought states that we have seen in quite some time, but we are now hitting strong overhead resistance with two unclosed gaps directly underneath. Combine all of the aforementioned and you can quickly see why the risk/reward scenario leans heavily towards a short-term reprieve next week." Now all of our … [Read more...]

High-Probability, Mean-Reversion Options Strategy

I hope all of you with a bearish lean are surviving this absolutely crazy market. I know that it has been the most difficult month for the High-Probability, Mean-Reversion Options Strategy in since its inception. The ongoing nine day rally has pushed both of our positions in losing territory, yet I am still confident that the performance will improve as we move towards the latter part of the month. No one said trading was easy, especially options trading, but it is all about perseverance . As for the Theta Driver Options Strategy we are well on our way to the third straight month of gains. All of the major indices have moved into short-term "very overbought" extremes, while hitting strong overhead resistance. Moreover, we have two large … [Read more...]

Options Offer Tremendous Opportunities

I am always amazed how large the opportunity to "make it big" factors into the great magnetism of the market. The belief that anyone, from any background can be successful and make tons of money has quite the allure. But, in all of this euphoria people neglect to think about all of those that failed before them. And believe me the failure rate is high. Yet, investors/traders continue to choose the most difficult of investments to trade - stocks. Stock-only traders are at a complete disadvantage because they have no way to trade the randomness of the market. They have a 50/50 chance of success for each and every trade. Bottom line - stock investors/traders are truly at a disadvantage. Again, stock investors only have two ways to make a … [Read more...]

Options Trades in the High-Probability, Mean-Reversion Strategies

A trade in the High-Probability, Mean Reversion Strategy looks likely if IWM happens to open flat or open tomorrow. Of course, there are a few other thng is that need to line-up, but the first trade of a slow August seems likely. Subscribers stay tuned! Our latest Theta Driver Options trade looks very good. Last Monday, I placed our first trade for a credit of $0.25 and thanks to some help from the bears (although a flat to slightly higher market would have worked as well, just not so quickly) the credit spread is now worth less than $0.05. With only $0.05 and 25 days left until September expiration I will mostly likely lock in the gain for roughly a 9% gain (including commissions) and place another Theta Driver trade within the next few … [Read more...]

Patient, Methodical Approach Leads to Further Gains in the High-Probability, Options Strategy. Portfolio Up 47.9% Since Inception.

On Wednesday I entered into some IWM puts. Of course, the market raced higher and my trade was quickly underwater, but I knew that the probability of a short-term decline was extremely high so I placed another trade and the following day the market declined. I stuck with the trade over the weekend because the short-term overbought reading had not worked itself out so the probability of a move lower remained high. Today, the market pushed significantly lower at the open so I was able to get out of my combined position for a nice profit that pushed my the High-Probability, Mean-Reversion options strategy to new high of 47.9% since its inception back in November. New Credit Spread Options Strategy – Beta The surge last week pushed the … [Read more...]