The Market Low For the Year Is In – Sell Out of the Money Put Options

August 25, 2015
Author: Peter Stolcers, Founder of OneOption

If you want my market comments everyday before the open, GET MY TRADING PLATFORM. I don't have time to post to my blog when the market is going crazy and that is when most of you need guidance. We made a killing yesterday and this is the best $.60 a day you can spend. Posted 9:30 AM - Yesterday the bottom fell out. Asset Managers pulled bids and we hit my level of SPY $182. I doubt we retest that this year Only a severe economic contraction in China would get us there and it needs to happen in the next few weeks. Once the Fed postpones a rate hike, it will be hard to knock this market down into year end. China cut interest rates and it lowered bank reserve requirements. That has the market on a sharp rebound this morning. The rate cut and easing in China is enough to spark a rally, but the effect will be brief. Central bank easing does not carry the same punch it used to. It has not stimulated economic growth and it is not likely to help. China's market was down on the news. CREDIT IS THE KEY TO GLOBAL MARKETS. IF WE DO NOT HAVE CREDIT ISSUES, WE WILL TREAD WATER. IF CREDIT ISSUES ARISE, PREPARE FOR DISASTER Decades of hyper growth in China has resulted in excess capacity. We don't know the extent of the "bubble". If their shadow banking industry starts to implode, global markets will crash. This could take months or years to develop. It is something to watch, but it is not something to lose sleep over. I have a 2-3 week time horizon and I will see the warnings signs. I believe we will bounce today. China's economy is not falling off a cliff. The price action the rest of the week should be good and option IVs will decline. The Fed is not likely to raise rates in 2015 and this might leak out during the KC Fed sponsored Jackson Hole summit this week (Aug 27-29). Today I will take advantage of inflated option IVs If I would normally buy 100 shares of stock, I will be selling 3 OTM put option contracts. I can distance myself from the action and I can take advantage of high options implied volatilities. This strategy is like adding shock absorbers to a car. If the stock is in a choppy grind higher, the positions will do great. Day trading a volatile market can be tough using the underlying shares (plenty of head fakes). If the shares finish flat for the day, this strategy should make money. I will focus on the strongest stocks (AMZN, FB, GOOG, APPL, NFLX...). The opening print Monday was the low and stocks rebounded sharply. That is a capitulation low. The price action will be choppy this morning, but after probing for support, we should be able to grind higher. Sell out of the money puts on strong stocks. . . image

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