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Take Profits On Bullish Put Spreads This Week and Reload On the Next Market Dip

Posted by Pete Stolcers on November 11

Posted 9:30 AM ET – The market is gradually floating higher on light volume. We are in a slow news cycle and that favors the upward momentum. Today we will celebrate the men and women who have proudly served our great country and the banks are closed. Monday’s have typically been slow and we should expect extremely light action today.

Protests in Hong Kong are weighing on the market, but don’t read too much into the dip this morning. This is going to be a choppy, gradual grind higher the rest of the year and news outlets will try to justify every wiggle and jiggle.

Trade negotiations with China are stable and the market is pricing in a truce. President Trump’s trade tweets have been minimal and market volatility has decreased as a result.

England will hold an election in one month and the results will have an impact on Brexit. The recent news has been market friendly.

The Fed has cited lower political uncertainty and improving economic conditions. They are not going to lower rates again this year.

ISM services, ISM manufacturing, the Unemployment Report and GDP all came in better than expected two weeks ago.

Earnings have been better than expected and guidance has been good. Stocks are trading at the upper end of their valuation range so the headwind will be stiff. Singles Day (China’s version of Black Friday/Cyber Monday) was excellent, but slightly below expectations.

Swing traders are long a half position of SPY. Use a closing stop of $305 and set the target at $310. We have been selling out of the money bullish put spreads and they are in fantastic shape. This week try to buy back your put spreads back for pennies. Many stocks have been moving higher and time decay is working its magic. By the end of the week we should be in cash and I expect to hit the stop or the target on SPY. We need a dip so that we can re-establish our positions. Ideally, the market tests SPY $302. I would like to buy on that support level.

Day traders should use Option Stalker searches that include relative strength and heavy volume this morning. Heavy Buying and Relative Strength 30 searches will find the best stocks. Once the market finds support, trade from the long side. The low from Friday ($307) should attract buyers. The next support level is $306. Try to make your money early and set passive targets. During the day you can also search for volume spikes on a 15 minute basis using Custom Search. The market won’t do much today so you need to have heavy buying in the stock.

Look for extremely quiet conditions today. Once support is established we should see a choppy grind higher this week. Light volume rallies are always vulnerable to profit-taking. Eventually bullish speculators will get flushed out and we will get the dip we are looking for. Our bullish put spreads will be easier to manage with each passing day. Make sure to buy them back when they are trading for pennies.

I would like to thank all of the men and women who have proudly served our great nation.

Happy Veterans Day!
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