Sell Out of the Money Bullish Put Spreads – Next Wave of Selling A Month Away

June 28, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:40 AM ET - Yesterday the SPY broke major support at $202 and we closed near the low of the day. Global markets are bouncing this morning and the bid looks fairly strong. I am expecting a small bounce and more selling later this summer. The end of the quarter will attract some buyers and earnings season is right around the corner. Major holidays also tend to have a bullish bias. Many Asset Managers were completely shocked by Brexit. They are still in a state of denial and there are rumors that the EU will negotiate labor terms (immigration) to keep England in the union. Central banks remain dovish and that is good for equities. If you look at a chart of the S&P 500 in December you will notice that major moving averages were breached a few times before we finally rolled over. I believe the same will be true this time around. The next major wave of selling should come in August and the SPY should drop to $190. I will stay fluid and watch the price action. The bounce this morning looks pretty strong. Asset Managers will not fully embrace this bounce until the bid is tested. I will find my bullish candidates early and I will wait for a retracement. When support is established I will trade from the long side today. The early dip will give me an excellent entry point. There is major resistance at SPY $202 and it should hold today. Over the course of the next few weeks we are likely to challenge SPY $204. The next wave of selling will start after Apple announces Q2 earnings. If I am wrong and the market makes a new low after the first hour of trading I will favor the short side. I will not hold any overnight shorts unless we take out the low from Monday. I like the technical breakdown, but I am not sensing panic. Credit markets remain stable and we won't see sustained selling until they weaken. Watch for a bounce today. This is a good time to sell out of the money put credit spreads that expire in July. Sell puts that are below technical support and stop trade out if that support is breached. . . image

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