New Trade – I Like This Options Strategy

August 1, 2022

The market has confirmed support and we can start using this strategy for longer term swing trades.

PRE-OPEN MARKET COMMENTS MONDAY – The reaction to the FOMC statement and earnings from the tech giants has been excellent. The rally the last few days has come on volume and that legitimizes support at the low of the year. The breakout above the downward sloping trend line has been confirmed and we have follow through. Friday the SPY closed above the 100-day MA and that is also a nice show of strength.

I am much more bullish after seeing the price action last week. I don’t pick bottoms or tops. I need technical confirmation and I have it.

This is going to be a busy week for economic releases. ISM manufacturing will be posted after the open today and ISM services will be posted Wednesday. The jobs report will be posted Friday. It should be pretty good because initial jobless claims have increased slightly in the last few weeks.

Missing from the list is the ADP report. I missed it last month and I needed to find out why it was not posted. I consider it to be more reliable than the jobs report. ADP is retooling it.  

In the last week my bias has changed and at very least I feel that the low of the year is safe. A financial crisis in China still has me spooked, but that will take time to manifest and there will be warning signs along the way. Consequently, we will trade as if they are going through a rough patch and we will not expect the worst.

I still believe that there will be a soft patch in August/September.  Swing traders can sell out of the money bullish put spreads below technical support on stocks that have relative strength. I prefer to keep them short term (3 weeks or less) and they should never span an earnings announcement. AMZN sets up well using the $125 level as the short leg. The market is pulling back this morning and I like selling the AMZN Aug (26) $125/$120 bullish put spread for a credit of $1.00. I like the firm base that has been established, the rally through horizontal resistance after earnings and the move above the 100-day MA. I am still expecting some market selling and this spread is far enough away from the action that we have plenty of breathing room. The support levels above the short strike price will provide added protection and we will let time decay work its magic. This is an example of the type of trade I am looking for and market dips will give you an opportunity to enter them.

This is the type of stock pattern I am looking for and the way I am structuring the trade.

Day traders should let the first 30-45 minutes pass. We are back below the 100-day MA and this is a bid check. After the mega cap tech stocks report, it is typical to see a little selling. Stacked green candles right on the open would signal a gap reversal and you can be more aggressive with longs. Anything less and you should let the market establish support before buying. The ideal set up is a gradual drift lower with mixed candles. Once support is established I would favor the short side. Buyers will still be engaged after heavy buying last week so I am not expecting a big drop.

The high and low from Friday are resistance and support.   


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