Stock Option Trading Strategy – Bull put spreads.

Earnings and M&A propelled the market to a new 7-year high yesterday. Today, a contained CPI number and a light industrial production number provided follow through. The rest of the week gets interesting as the major tech stocks get ready to announce. The A/D has been very convincing as a broad range of stocks participated in the breakout. Option expiration is only a few days away and it is setting up to favor the bulls. The open interest for in-the-money calls is high and if traders see a grind higher (like today), they will leg out of hedged positions as they roll them forward. This action may “goose” the market even higher. I like the strength and depth of the rally, but as I have stated, the fate of the market lies in the earnings. Interest rates are going to remain constant for much (if not all) of the year. I have a number of put credit spreads on, and they are working nicely. They are allowing me to distance myself from the action. Over the next 10 trading days we will get a clear picture of just how robust the earnings are. If companies beat estimates, the market will be in go-go mode and I will join the trend with confidence. If earnings come in light, the market will fall back into the SPX 1410 – 1460 range. For today I expect prices to grind a little higher. SPXt.png

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