I understand the reasons why so many are bearish right now and I
don’t disagree. However the market could be catching a lot of
people off guard if inflation numbers come in surprisingly low.
Short covering rally could be huge.
Posted by DigiNomad on 12th of Sep 2022 at 10:36 am
Bearishness doesn't have to be complicated right now. The most
important rule in this business is "don't fight the fed." No other
rule comes close in importance. The market is openly
fighting the fed at the current time. You hear it all the time in
various interviews on CNBC. They believe that either JP doesn't
have a cajones to do what he needs to do or that inflation will
roll over sooner rather than later which will make the Fed pause
sooner than advertised...or both. Either way, the market it
refusing to take the Fed at its' word. We saw what happened on the
way up when people were trying to figure out why in the world the
market was levitating in the midst of a global shutdown (answer:
The Fed and just the Fed) and we'll see what happens now if the Fed
keeps it word on rates and QT. Unless the market is right to fight
the fed this time. Fighting the Fed always ends in tears. The only
hope for bulls is their belief that the fed is bluffing.
Posted by shellson2 on 12th of Sep 2022 at 10:50 am
I would only say one theme that I can not rule out, " Mid-term
elections." The FED of course is politically unbiased, but we
know how these things tend to work out. I'm not a fed fighter by no
means, but this may be different.
Posted by DigiNomad on 12th of Sep 2022 at 10:57 am
Right, so you're in the "The Fed might be bluffing" camp. That's
fair. They might be. It wouldn't be the first time. Talking a
strong game sometimes does a lot of their work for them. But in
this case, they are talking a strong game and monetary conditions
are still loosening (loosening across the board today). I
think that was clearly why JP did such a short, forceful speech
last time around. He is annoyed at not being taken at face
value.
I think people are believing what they want to believe - kind of
like a scientist who goes into testing his thesis with a strong
bias and then favors the data from his experiments that support his
bias - too many people want the Fed to be done or nearing the end
and continually look for reasons and justifications for it
Posted by DigiNomad on 12th of Sep 2022 at 01:03 pm
Never heard this quote but agreeing with it somewhat explains
why I sell credit spreads on both sides of the market as my primary
strategy. If I was more confident in market direction and timing, I
would logically be buying debit spreads instead for the larger
potential returns. Selling credit spreads allows me to win on 3 out
of 4 outcomes. Buying debit spreads means I only win on 1 out of 4
possible outcomes...and I'm essentially admitting to myself that my
base case has a high likelihood of not playing out the way I
imagine.
Posted by mirhamedali on 12th of Sep 2022 at 03:10 pm
I do the same thing DigiNomad: use TA to lean in one direction
while opening spreads.
I like to open credit spreads just because my downside risk
is capped, plus I think the margin requirement is lower since I am
taking on the credit. I agree, its good to have a system
where you can win in 3 of 4 scenarios, 80% of the time.
I open 2-3 month long spreads and usually close them out in
about a month ... depending on where we are in the elliott wave
counts. I find its not worth holding all the way
You can make more with spreads than with the indexes
themselves
Posted by mirhamedali on 12th of Sep 2022 at 03:14 pm
Have you guys looked at Ladder credit spreads? You are
basically adding on one far OTM option to cover the possibility of
a surprise move in the wrong direction.
By doing a ladder you can win no matter which direction the
market moves ... all you need to bank on is the market moving at
least 3 % up or down - a flat market is no good.
Posted by mirhamedali on 12th of Sep 2022 at 11:52 pm
@tmbrook1, here is the example you requested
This is on QQQ. First image is a normal Bear Put Spread,
2nd one adds a 385 Call which is just $0.21, so its dirt
cheap insurance in case the market moves against me. Even if
the market goes up 10% my loss is almost zero.
But as you can see the insurance starts losing some juice after
about a month, but its best practice to exit spreads early (at
around 50% of max profit).
As an advanced tactic, if the market moves against you then
you can sell that OTM call if you feel the market will come back in
your favor thus banking some profit in the interim.
Posted by bpozdoll1717 on 13th of Sep 2022 at 08:11 am
Plus seems like the big boys have advance knowledge of a good
CPI. No way they run it up to a key announcement without some info
leaked. Expect a lower CPI.
Posted by DigiNomad on 12th of Sep 2022 at 03:52 pm
Ladder happens naturally if you're watching the market daily and
doing credit spreads on both sides of the market (selling calls
spreads wehn overbought and put spreads when oversold).
I tend to sell options with around 45 days to epiration and
they are always out of the money (no more than 20 delta when sold).
Given these parameters, I'm not sure what you mean by "flat market
is no good." I would LOVE a flat market right now. Although,
you want the vol to be high when you enter the trade, you WANT it
to collapse after you're in (with credit spreads)
Posted by mirhamedali on 12th of Sep 2022 at 04:50 pm
I dont want the market to be flat so that I can exit the trade
early. I rarely hold to expiration. I normally exit
halfway through. I end up making more on a per day basis that
way.
You are right the ladder can happen naturally if you are
opening trades on both sides, that's a cool approach. But
then one trade may be a loser. However with an actual ladder
each of the trades can be winners.
Posted by DigiNomad on 12th of Sep 2022 at 09:43 pm
I only trade SPX options in taxable account and SPY
options in retirement accounts (better liquidity but I have to use
more contracts). Since I've focused my efforts on what
amounts to a single product / index, my results have been
outstanding and predictable. Unfortunately, I know that
someday I'll likely have to transition over to more volatill e
products again. But with the VIX where it's been at recently, I can
stick with a single index for my option set ups and do just fine.
I'll cross the lower volatility bridge when we come to
it.
I refer to you guys as the options expert, of which I am not.
Appreciate when you post various complex strategies involving
spreads and ladders vs just buying or selling a Call or Put option
-especially when it relates to the SPY and ES system trades
I place spreads myself. Both Bull and Bear Put spreads. But with
all the great info here and so many T.A. tools at your exposure not
sure why you cannot pick a direction. But to each his own.
Posted by DigiNomad on 12th of Sep 2022 at 02:22 pm
The TA from the site is critical to my credit spread selling
strategy. I use it to pick the levels / strikes that I sell and
when to sell them (overbought = start selling call spreads,
oversold = start selling put spreads).
I understand the reasons why
Posted by tgo5043 on 12th of Sep 2022 at 10:27 am
I understand the reasons why so many are bearish right now and I don’t disagree. However the market could be catching a lot of people off guard if inflation numbers come in surprisingly low. Short covering rally could be huge.
I discussed the rampant bearishness
Posted by matt on 12th of Sep 2022 at 10:28 am
I discussed the rampant bearishness in the weekend newsletter
Bearishness doesn't have to be
Posted by DigiNomad on 12th of Sep 2022 at 10:36 am
Bearishness doesn't have to be complicated right now. The most important rule in this business is "don't fight the fed." No other rule comes close in importance. The market is openly fighting the fed at the current time. You hear it all the time in various interviews on CNBC. They believe that either JP doesn't have a cajones to do what he needs to do or that inflation will roll over sooner rather than later which will make the Fed pause sooner than advertised...or both. Either way, the market it refusing to take the Fed at its' word. We saw what happened on the way up when people were trying to figure out why in the world the market was levitating in the midst of a global shutdown (answer: The Fed and just the Fed) and we'll see what happens now if the Fed keeps it word on rates and QT. Unless the market is right to fight the fed this time. Fighting the Fed always ends in tears. The only hope for bulls is their belief that the fed is bluffing.
I would only say one
Posted by shellson2 on 12th of Sep 2022 at 10:50 am
I would only say one theme that I can not rule out, " Mid-term elections." The FED of course is politically unbiased, but we know how these things tend to work out. I'm not a fed fighter by no means, but this may be different.
Right, so you're in the
Posted by DigiNomad on 12th of Sep 2022 at 10:57 am
Right, so you're in the "The Fed might be bluffing" camp. That's fair. They might be. It wouldn't be the first time. Talking a strong game sometimes does a lot of their work for them. But in this case, they are talking a strong game and monetary conditions are still loosening (loosening across the board today). I think that was clearly why JP did such a short, forceful speech last time around. He is annoyed at not being taken at face value.
yes, odds do favor a
Posted by shellson2 on 12th of Sep 2022 at 11:01 am
yes, odds do favor a strong fed and not be taken lightly...data this week should be telling
I think people are believing
Posted by matt on 12th of Sep 2022 at 11:06 am
I think people are believing what they want to believe - kind of like a scientist who goes into testing his thesis with a strong bias and then favors the data from his experiments that support his bias - too many people want the Fed to be done or nearing the end and continually look for reasons and justifications for it
A famous trader once said
Posted by steverobin on 12th of Sep 2022 at 12:48 pm
A famous trader once said that I would rather lose my opinion than my money.
Yes and I can vouch
Posted by retirefire on 12th of Sep 2022 at 01:19 pm
Yes and I can vouch that it an expensive lesson
Never heard this quote but
Posted by DigiNomad on 12th of Sep 2022 at 01:03 pm
Never heard this quote but agreeing with it somewhat explains why I sell credit spreads on both sides of the market as my primary strategy. If I was more confident in market direction and timing, I would logically be buying debit spreads instead for the larger potential returns. Selling credit spreads allows me to win on 3 out of 4 outcomes. Buying debit spreads means I only win on 1 out of 4 possible outcomes...and I'm essentially admitting to myself that my base case has a high likelihood of not playing out the way I imagine.
I do the same thing
Posted by mirhamedali on 12th of Sep 2022 at 03:10 pm
I do the same thing DigiNomad: use TA to lean in one direction while opening spreads.
I like to open credit spreads just because my downside risk is capped, plus I think the margin requirement is lower since I am taking on the credit. I agree, its good to have a system where you can win in 3 of 4 scenarios, 80% of the time.
I open 2-3 month long spreads and usually close them out in about a month ... depending on where we are in the elliott wave counts. I find its not worth holding all the way
You can make more with spreads than with the indexes themselves
Have you guys looked at
Posted by mirhamedali on 12th of Sep 2022 at 03:14 pm
Have you guys looked at Ladder credit spreads? You are basically adding on one far OTM option to cover the possibility of a surprise move in the wrong direction.
By doing a ladder you can win no matter which direction the market moves ... all you need to bank on is the market moving at least 3 % up or down - a flat market is no good.
Can you give and example
Posted by tmbrook1 on 12th of Sep 2022 at 06:32 pm
Can you give and example of how you would set one of these up. How far out is the additional option.
@tmbrook1, here is the example
Posted by mirhamedali on 12th of Sep 2022 at 11:52 pm
@tmbrook1, here is the example you requested
This is on QQQ. First image is a normal Bear Put Spread, 2nd one adds a 385 Call which is just $0.21, so its dirt cheap insurance in case the market moves against me. Even if the market goes up 10% my loss is almost zero.
But as you can see the insurance starts losing some juice after about a month, but its best practice to exit spreads early (at around 50% of max profit).
As an advanced tactic, if the market moves against you then you can sell that OTM call if you feel the market will come back in your favor thus banking some profit in the interim.
Plus seems like the big
Posted by bpozdoll1717 on 13th of Sep 2022 at 08:11 am
Plus seems like the big boys have advance knowledge of a good CPI. No way they run it up to a key announcement without some info leaked. Expect a lower CPI.
The SPX formed a clear
Posted by steve on 13th of Sep 2022 at 08:18 am
The SPX formed a clear triangle yesterday (posted here) which suggested a push higher
Ladder happens naturally if you're
Posted by DigiNomad on 12th of Sep 2022 at 03:52 pm
Ladder happens naturally if you're watching the market daily and doing credit spreads on both sides of the market (selling calls spreads wehn overbought and put spreads when oversold).
I tend to sell options with around 45 days to epiration and they are always out of the money (no more than 20 delta when sold). Given these parameters, I'm not sure what you mean by "flat market is no good." I would LOVE a flat market right now. Although, you want the vol to be high when you enter the trade, you WANT it to collapse after you're in (with credit spreads)
I dont want the market
Posted by mirhamedali on 12th of Sep 2022 at 04:50 pm
I dont want the market to be flat so that I can exit the trade early. I rarely hold to expiration. I normally exit halfway through. I end up making more on a per day basis that way.
You are right the ladder can happen naturally if you are opening trades on both sides, that's a cool approach. But then one trade may be a loser. However with an actual ladder each of the trades can be winners.
I only trade SPX options
Posted by DigiNomad on 12th of Sep 2022 at 09:43 pm
I only trade SPX options in taxable account and SPY options in retirement accounts (better liquidity but I have to use more contracts). Since I've focused my efforts on what amounts to a single product / index, my results have been outstanding and predictable. Unfortunately, I know that someday I'll likely have to transition over to more volatill e products again. But with the VIX where it's been at recently, I can stick with a single index for my option set ups and do just fine. I'll cross the lower volatility bridge when we come to it.
I refer to you guys
Posted by matt on 12th of Sep 2022 at 03:26 pm
I refer to you guys as the options expert, of which I am not. Appreciate when you post various complex strategies involving spreads and ladders vs just buying or selling a Call or Put option -especially when it relates to the SPY and ES system trades
I place spreads myself. Both
Posted by brophy on 12th of Sep 2022 at 01:11 pm
I place spreads myself. Both Bull and Bear Put spreads. But with all the great info here and so many T.A. tools at your exposure not sure why you cannot pick a direction. But to each his own.
The TA from the site
Posted by DigiNomad on 12th of Sep 2022 at 02:22 pm
The TA from the site is critical to my credit spread selling strategy. I use it to pick the levels / strikes that I sell and when to sell them (overbought = start selling call spreads, oversold = start selling put spreads).
Been away at a wedding
Posted by tgo5043 on 12th of Sep 2022 at 10:29 am
Been away at a wedding and haven’t seen it yet.