SPY Long 12-2-21

SPY has retraced to the 50% Fibonacci level and the VIX is going down. Wait for price to go above the trendline and the RSI to break the trendline as well. This will be confirmation for an upwards move to at least the previous high.

SPY Moving Higher 2-4-21

SPY has closed above the previous high and is looking to head up to the 1.618 fib level.
 

Calendar Spreads

I've been gone for a while trying to develop a strategy that fits my personality and temperament. I had studied so many differents strategies and I needed to simplify.

The one I came to that caught my attention was Calendar Spreads.  I heard it was Tom Sosnoff's (from the Tasty Trade network) first trade.

Calendar spreads involve buying an option in a "back" month usually 40-70 days until expiration and selling an option in the "front" month usually 15 days until expiration.  The point of a calendar spread is to take advantage of time (theta) decay which begins to exponentially take effect 15 days from expiration.  Because the back month options are more expensive you will have a debit from your account and you are using the front month option to bring it's cost down.

The trade is usually put on during low volatility because you are essentially buying an option.  You want volatility to increase so it will also increase the value of your option.

After doing some back testing I came up with a sweet spot that seems to work for max profit and max success.

• Implied volatility (IV Rank) of 12 or less
• 40-70 days til expiration for the back month
• 15 days til expiration for the front month
• 25% Probability in the money on the front month
• Exit the trade at 10-12% profit 
• Exit the trade between 3-4 days or if negative hold closer to expiration for theta decay
• Trade liquid underlyings of at least 500,000 daily volume trades 
• Trade underlyings that don't have wide moves

You have defined risk because you can not lose more than the cost of your investment.  I tried my back tests on DIA and SPY and most of the trades were successful. The thing to keep in mind is that the trade is directional, meaning, your best chance of success is to make the right assumption at the direction of the underlying but what helps you out even if you are wrong in your assumption is if the underlying moves sideways after it moves. You make up any losses on the time decay feature of the trade. Of course the optimal situation is if the underlying moves in your direction, then you can take profits.

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. 

Market Update 5-25-16

Got out of my SPY bear call spread at 50% max loss.  The market conditions completely shifted and I was completely wrong about my short term prediction.  Housing data and strong earnings went against me.  I'm still overall bearish until wages rise, unemployment numbers come down and banks start giving mortgages to people with credit lower than 730.  However, I am short term bullish.  We might see the pullback at the end of the week when people start to go away for the Memorial Day weekend.

Volatility is Great For Profits

I've been paper trading over the past few days just to keep active (I was stacking my investing funds into the preferred stock PFF for safe keeping while I figured out a plan).

Here are my results:

Granted if I was using real money I would have used spreads instead of naked transactions and made about half, but over the past few days I've made over $5,000 in paper money trading the volatility in the market.

I stuck to trading the SPY exchange traded fund because it's what the market is beta-weighted to anyway.  If the S&P goes up most stocks with solid balance sheets and good earnings will go up and vice versa.  

My approach was to wait for a pullback to around 204 or a jump in price to around 206. When the price went up I would sell call options and if I was in my position too early (meaning the stock continued to rise) I would buy put options to increase my bias to the downside (negative Deltas).

When the price would go down I would liquidate my positions when I made 50% profit or more and begin selling put options.  Again, if I was too early I would buy call options to increase my bias to the upside (positive Deltas).

Current Trading Plan 5-21-16

There's a fight going on right now between the bulls and the bears.  No one is going to win in the short term because there is not enough market data or any world events to say the market is going to go down.  On the other side, there is not enough data to say that it will go up. 

The middle and lower class are not making enough money to sustain retail earnings and the banks aren't lending like before allowing them to buy things on credit.  The engine of the economy has stalled and the only thing to restart it is to increase wages for all workers and to open lending opportunities for lower income earners.

As for the short-term market direction, after the big drop we had this week we have recovered already and it will probably make it to 206 on the S&P. However because of the tension in the market and the trigger happy bulls and bears when we reach around 206 the market will be smacked back down to around 203. 

As most people know the market climbs slowly but falls down fast.  Generally, I'm bearish because we are overbought at these levels. If there is a big swing to the upside I'll sell calls and buy puts.  Conversely, after a big swing to the downside I'll sell puts and buy calls. 

Current Strategies For Today's U.S. Stock Market

The current U.S. market conditions will remain volatile until there is a longer trend of higher wages, consistent job growth, low rates and low inflation.  Outside effects of China and other world markets will have little effect on U.S. based companies.  Low oil prices will also have little effect on U.S. based companies, if anything they will help bolster them. 

If you are investing long term continue to buy dips in the market using the dollar cost average strategy.  If you are day-trading options set your iron condors wide because the jumps may be large. The range on the SPY should be between 180 and 200.  Or you can sell bull puts and bull put spreads when the market goes down to capture the higher implied volatility prices.    

There is an article in Marketwatch showing the growth in jobs and wages so we are headed in the right direction but it will take some consistency to create a foundation for the volatility we are experiencing.  The middle class is the engine of our economy and if there is no fuel in the tank we can't go anywhere.

Marketwatch Article

Market Correction

The large market move downward is in my opinion a scared reaction to China's market instability.  China and the US market have been going up steadily for years now and at some point the market was going to stall.  The current market valuations are pretty pricey and there isn't any real reason for many stocks to go any higher based on global market conditions and with China's market going through some issues.

In the days ahead I think the market is going to continue to be volatile moving down and up as people try to figure out what prices should be.  The market is more than likely not going to go any higher until there is favorable news about China or the Fed's decision about interest rates.  I personally think that the SPY (the benchmark for many investors) is going to stay between 185 and 205 until the next earnings come out.

SPY Missed

I missed my entry point of 188 on SPY and it hit around 193 shot back up before I could get in.  I still think it has more room to go but I think I'll wait for another pullback.  Historically the chart shows that between November and December it makes a run due to the holidays.  I'll probably start scaling in around mid September.

SPY Is A Buy

People are talking about a big market correction.  Last week was a small one and I think it may be petering out.  If you look at the chart on SPY, the S&P ETF managed by Spyder, when there is a small correction, the price drops around 10 or 9 points and then heads back up. 

I'm waiting for SPY to drop down to $188 and then I will pick up some shares. The way this market is moving I think the bulls are still in charge.

Making Money on Put Strategies

As I mentioned before in a previous post, some very successful traders use put strategies to make a lot of money in the market.  This was a very lucrative time for many traders who do.  The market was going up and people didn't know where it was going to stop.  Then instability came into the market through Cyprus, Greece and now with the attacks in Boston.  You can almost guarantee something is going to happen in a two-month time period to cause markets to destabilize and when they do the S&P, DOW and NASDAQ all go down.  The best play of course is the SPY because it responds directly to big dips in the market.  The options are also real close between the Bid and Ask price so this makes it easier to get in and out of your trade.

The market always goes up slowly and comes down fast.  You will almost never catch the market going up fast unless it is on some news that nobody but insiders know and when it does it is usually in after hours trading so you missed the run (case in point: Sprint shot up a whole point over night the other day after Dish Network said it wanted to buy them).  So the play is to wait for the market to go up and then place put options at various points going at the most two months out.  For example the market is already down today so I would wait until SPY gets back to 157 and then as it goes up place put options for the June 155 strike price.  Then wait and see what happens.  You can place your stop at 159 and your limit at around 153 (I know the options order window in TOS doesn't show the strike price but after you play around with adjusting your trade price it will show you on the chart where your options orders are).  

Yes it's great to have stop and limit orders but always watch your trades.  There are sometimes your bid doesn't go through as quickly as you would like and you could miss some profits or worse lose money.  When you see your profit margin approaching it may be a good thing to call your broker and ask him/her to place the trade for you at your trade price.  Depending on the brokerage firm they can actually execute your trade for you better than your computer.  They can find a buyer for you and make you some good money.  I've had good experiences with Trade King and highly recommend them.

Chart Analysis 8-2-12

Here's a Facebook post from Investools Instructor Dave Johnson talking about the overall market movement.  He is pointing out that the market has broken through a resistance line and has gone back below it.  His belief is that the market will go back down to its support line and then back up to break out of its resistance line again.


An ascending triangle pattern is a potential trend continuation pattern that occurs in an uptrend that moves to a higher high, pulls back to a higher low, rises to a similar high and then pulls back to another higher low creating a horizontal resistance line and a rising support line. If the trend continues a breakout of the horizontal resistance occurs. In my experience, very often a breakout of resistance is followed by a pullback or test of the breakout where old resistance can become new support. This pullback test is common and can be expected on breakouts.