Stock Option Trading Strategy – Long call options on energy stocks and bull put spreads.

May 4, 2007
Author: Peter Stolcers, Founder of OneOption

More unemployed workers are good for the economy - right? That's how the market is interpreting the data from today's release. The bulls theorize that this will inch the Federal Reserve closer to an interest rate reduction. As I've been mentioning, the market has been able to put a positive spin on every economic release. I believe today's rally is the result of the recent upside momentum. Interest rates will NOT change this year. A weaker economy will be offset by stronger inflation and the Fed can’t justify changing its current monetary policy. Solid earnings are driving this market higher. Corporations have solid balance sheets and they are buying back shares. M&A and private equity deals are also driving stock prices higher. In the absence of a truly negative event, the market has demonstrated its ability to move higher. At this stage under-invested Asset Managers are scrambling to put money to work. My option trading strategy might sound like a broken record, but it's working. I’m long call options on energy stocks and I am short bullish put spreads on stocks I like. Trading today will have a positive bias and the bears won’t dare to take a short position going into the weekend and "Merger Monday". I also don't believe that we will see a "melt up" going into the close. The market will likely establish the high of the day by noon Eastern Time. In today's chart you can see the strength of the S&P 500 over the last few weeks.

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