Brexit and What to Do Now

Last week the market got broadsided and no one saw the Brexit coming.  It goes to show you that the market is unpredictable and that trends don't last long.  When you have your profit take it.  If you have been down for a while just wait and things will change.  

As for this coming week, I think the volatility will continue but be more dramatic.  It's not a good idea to put on any iron condors because one leg will be hit hard.  

It will be difficult to gauge the fair market value of anything in these market conditions because the European economy is in limbo until key decisions are made about the countries that make up the UK. You also have the Fed who will probably hold off on raising rates because of the uncertainty.  These and other opposing forces could swing the market wildly next week.

If I had to make a trade (and I think I'm going to sit this one out) I would probably play the extremes. Since we dropped hard on Friday, I would look for a short bounce on Monday and then a drop.  As for the rest of the week I would have to wait and see.

The one thing that is very appealing is that the IV rank across the board is medium to high and options prices are very lucrative at the moment, so if you have the stomach for it, you could make a nice profit.

Buying Options

For the longest time I have been of the mind that I will never buy options because of the time decay feature that exists.  I’ve since amended my stance on buying options because there are circumstances when they may be useful.

These situations are when the stock is experiencing low volatility thus making the options prices cheaper.  When this occurs you can benefit greatly when the stock moves big in one direction.  Volatility will increase dramatically when if the price falls and decrease dramatically if it rises.  Being on the right side of the move can be very profitable in a short space of time.

When buying puts or options because of low volatility environments make sure you pay attention to the following:

• Get filled at the right price
• Buy further than 30 days till expiration so time decay won’t hit you as much
• Look for explosive opportunities for when the stock is going to move quickly in one direction
• Don’t hold past a few days because time decay will eat away at your intrinsic value
• Use the TTM squeeze to time your entries 

Current Trading Plan 6-7-16

It’s important to realize when your current plan may not be working and you need to change tactics.  Your overall assumption may still be correct but the market is notorious for defying logic.

I've been getting beat up with my short play on the SPY and all common sense would say short the market because it's at its highest. The trader’s manifesto is to buy low and sell high but this market seems to want to go higher even when there's bad news.

Since the trend is moving up and this trend has bucked several attempts against it, I got out of my bear call spread and bought an August 19 call at 218 strike price and now I'm finally making money instead of losing money. It's hard to time the market and the other trader maxim is appropriate here, the trend is your friend.

I figured the market is going to go up at least to 214 and I'm still in keeping with my buy low/sell high philosophy because I'm buying low premium.  Maybe that’s the lesson , buy low premium and sell high premium.