Market Capitulated – Sell Bull Put Spreads – Day Trade “Size” From the Long Side

January 21, 2016
Author: Peter Stolcers, Founder of OneOption

WATCH US MAKE A KILLING TODAY Posted 9:30 AM ET - I told you yesterday that I would be trading from the long side and that the big decline on the open would set up a fantastic opportunity. In the chat room we waited patiently for support to be tested at SPY $182. That was the August low and it held. Next we needed to see a rally above the high of the day (SPY $185.50) and it had to happen mid-day so that the rally could continue into the close. Once we had that, we loaded up. This was the capitulation low we've been waiting for. The S&P 500 was down four points early this morning and it has gradually been grinding higher. Draghi's speech has added 15 points to the rally and the futures are up sharply this morning. A year ago I would have jumped on this capitulation low with everything I have. Conditions have changed and the selling pressure is much stronger than it was in 2015. Consequently, we are likely to see a few aftershocks and we need to treat this first bounce with caution. Yesterday I sold out of the money bullish put spreads on Facebook, Google, Amazon and Netflix. I also sold other out of the money put credit spreads. This strategy gives me breathing room. If the market does pullback slightly in the next few days, I won't sweat it. Bullish put spreads also take advantage of inflated option implied volatilities. If the market stops going down, strong stocks will tread water and time decay will kick in. Along this same line of thought, I sold VXX short. These are my overnight positions. I'm not buying calls. The premiums are rich and I can do much better day trading stocks with 4:1 leverage intraday. I will leverage my account to the max today. Many years ago I learned that the vast majority of my time is spent waiting for high probability events. Most of my money was made during a few short periods of time during the year. When I realized that, I changed my trading style. During choppy markets, I trim my size and my goal is to grind out profits. I do not want to piss my money away while I'm waiting for the set up. When the opportunity presents itself, I need to swing for the fence. I missed the market decline and I knew I had to be patient. We have been consistently making money in the chat room, but we've kept our size small and our overnight risk exposure to a bare minimum. Now we have the move we've been waiting for. Every gap up this year has been faded. Don't rush in and buy this rally. I am expecting a brief and shallow pullback, but in this market you never know – we could pull back sharply. The key is waiting for the market to make a new high after the first hour of trading. Use that first hour high as your stop. When the market rallies above SPY $187.50, you can trade with greater confidence and use that as your stop. To recap, I am selling out of the money bullish put spreads on strong stocks. The short strike should be below technical support. If that technical support is breached, buy back the put spread. I am also short VXX and I will use yesterday's high as my stop. These are my overnight positions. I plan to capture the rest of this bounce day trading strong stocks and by using 4:1 intraday leverage. I expect to see fantastic candidates left and right. I am particularly interested in stocks that are breaking through horizontal resistance and that have compressed during the last stage of this market decline. A buy signal from my trading system is also critical. I suggested that you take my one-week free trial yesterday so that you can see how we make money buying stocks in a down market. We did exactly that in the first half of the day and when the market took off, we made a killing. If you are a day trader, I hope to see you in my chat room today. Make sure to take profits on your day trades to minimize your overnight risk. . . image

Daily Bulletin Continues...

Want Full Access?

Become a Member

Start Free Trial

No credit card required.


Previous Bulletin

January 20, 2016

Next Bulletin

January 22, 2016