Market Trapped In A Range – Use This Option Trading Strategy

Posted 9:30 AM ET - Yesterday the market probed for support early and it rallied back to where it started. The news this week has generally been bullish and the bid should strengthen into earnings season. I believe that this is a good time to sell out of the money bullish put spreads. Take advantage of time decay and generate income while the market is range bound. Face-to-face trade negotiations with China will resume on October 10th. China has increased purchases of some US goods as a sign of good faith. Huawei might license some of its 5G technology to US companies to avoid security concerns. That would be a positive development. As long as both sides keep the tone cordial investors will be pacified. Economic growth in both countries is stable and US consumers are not feeling the tariff pinch because the yuan has been falling. China's industrial profits came in lower than expected and protests in Hong Kong will resume this weekend. This may soften their tone at the negotiating table. The US and Japan have agreed to a trade deal and Trump has promised not to impose tariffs on Japanese cars. A hard exit for England seems very unlikely this year and that risk is off the table. Economic conditions in Europe are slipping. The US is much more reliant on exports to Europe than it is on exports to China. The drop in activity needs to stay abroad to keep investors in equities. Central banks around the world are easing and that is providing a safety net for the market. Bond yields don't keep pace with inflation and stocks are the best game in town as long as credit concerns are minimal. Earnings season will begin in two weeks and buyers are typically engaged ahead of the news. Swing traders can sell out of the money bullish put spreads on stocks with relative strength. Make sure the short strike price is below technical support. If that support is breached buy back the spread. This strategy will allow you to distance yourself from the action and to generate income while the market stays in this range. This is a relatively passive strategy and it is consistent with my neutral to slightly bullish market bias. I won't aggressively buy until we get decent pullback to SPY $294. We had a brief opportunity at that level for a few minutes this week and I'm waiting for a retest. Day traders should favor the long side. Wait for the opening rally to be tested and buy dips. The news has been generally positive. We had to wait before we could buy yesterday. Spend the first hour identifying relative strength. I have been posting daily videos in Option Stalker in the first hour. Focus on those stocks. My market bias is neutral to slightly bullish. Support is at SPY $294 and $296.5. Resistance is at $300 and $302.50 . .

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