Sell Bull Put Spreads. Dull Trading the Rest of Nov. Take Advantage of the Market Bid and Time Decay

November 21, 2013
Author: Peter Stolcers, Founder of OneOption
Author
Pete

The price action this week has been choppy and that is typical for the first week in a five week expiration cycle. It has been a great year and the S&P 500 is up 25%. Asset Managers don’t want to chase stocks near an all-time high and some might be willing to lock in profits.

The headwinds will stiffen as 2014 approaches. The continuing resolution (CR), tapering, the debt ceiling and the Obamacare mandate will weigh on the market.

Conditions are still bullish, but we lack a catalyst. This morning, flash PMI’s were released and Asia and Europe came in slightly below expectations. The news is extremely light for the rest of the month and we are heading into a mid-week holiday. Trading volumes will drop off.

Most of the attention this week has centered on the Fed. “Fed Speak” and the FOMC minutes did not yield any new information. Tapering is not likely to begin until Janet Yellen takes office and the debt ceiling is extended.

Earnings season is winding down and retailers are posting mixed results. Analysts are maintaining their projections for the S&P 500 and the results have been good. Cash flows are strong and companies are using that money to buy back shares.

Global economic conditions are steady and credit concerns are low.

I don’t see any spoilers or catalysts. The market has pulled back from a new relative high and I will day trade from the short side if I see follow-through selling. If the market breaks through SPY $180, I will enter a very small call position.

It has been a great year and I don’t want to give my profits back. Consequently, my bets will be small.

There are individual stocks that look good. The market won’t stand in the way of these breakouts. Focus on stocks that are in a strong uptrend and are breaking through horizontal resistance. Given the low-volume environment, consider selling out of the money put credit spreads. This strategy will take advantage of time decay and an underlying bid to the market.

Stocks are grinding higher this morning and we are likely to flat line after the first two hours of trading. Look for dull price action heading into the weekend.
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