Broader Market Weekly Performance:
Dow +2.39%
S&P +1.95%
Nasdaq +1.84%
Russell +2.02%
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MARKET UPDATE:
Three weeks into 2012 and markets continue to rocket higher. Decent earnings and a lack of headlines out of Europe have provided the market what it needed to continue squeezing any and all shorts. Add January OpEx into the equation and things get even more squirrely; aka painful for the shorts.
As discussed during email correspondence with a subscriber this week, OpEx typically results in market movements that will cause the most pain for the most option market participants. This time around that meant railing the market even higher to squeeze the shorts even further.
As a result, the VIX closed the week at a 5 month low. The close was below the lower Bollinger Band and far below the short term moving averages (10, 13, and 20 day moving averages). The VIX close occurred on major chart support as well. Weak VIX closes are very common at OpEx and I expect to see a bounce back up next week as it gets recalibrated for February options.
The recent rally, and subsequent plummeting of the VIX, is lulling many into a false sense of comfort. The market has come too far too fast (4-7% gain across the indexes in the last 3 weeks) and needs to consolidate, digest, and back and fill to sustain a continued rally. The further we rally from here, with no meaningful pullback, the shorter I will get.
For the record, I am not a bear. I actually expect S&P 1340-1350 during the first half of the year. But, this rally has been too fierce and quick to sustain and it needs to pullback to test the levels from which it broke out. This would signal a move to approximately S&P 1280.
In the meantime, I will continue to sell into this rally via Bear Call Spreads and In The Money (ITM) Bear Put Spreads. I will leave myself room to be wrong in the event the rally continues but will not be getting short puts anytime soon. I am cautions about short puts because when we get a break downward, to is likely to be swift. Being short puts at this juncture is a recipe for disaster. Instead, use conservative strategies above the market to insulate yourself from a rapid decline as it will happen.....at some point.
Navigate wisely and stay profitable, my friends. Happy trading!
BOOKINGALPHA UPDATE:
Monthly Trading Service Commentary:
It was a busy week in the Monthly Trading Service with roll adjustments to 2 Bear Call Spreads on QQQ & SPX, execution of a new Bear Put Spread on SPY, and the successful expiration of a Bear Call Spread on RUT for +12.36% in 10 days.
The 2 roll adjustment trades were executed to reposition the QQQ & SPX Bear Call Spreads as required due to the massive rally for the last 3 weeks in the markets. Both roll adjustments repositioned the risk profiles of each spread to a more comfortable setting while receiving additional credits for doing so. This is the best of both worlds in options trading.
The new SPY Bear Put Spread was deployed to take advantage of an overdue pullback or at least a slowing of the current rally. The spread is nicely Out of The Money (OTM) and will profit quickly on any pullback. A stalling of the rally will also generate profits for the position as well as premium value will decay of the short strike sold.
Lastly, the existing RUT spread expired for full profits with January options expiration on Friday.
With the expiration of the RUT spread and the new SPY position, the Monthly Portfolio is 60% invested with the remaining 40% in cash.
The Monthly Advisory continues to outperform and deliver consistent drama-free Alpha:
+2.10% YTD BookingAlpha Monthly Advisory
vs.
+4.48% YTD S&P 500
Weekly Trading Service Commentary:
There was no trade for this week's Weekly Options Expiration due to a lack of prudent opportunities. However, a new trade was opened on Friday using Feb Monthly options. The trade is a Bear Put Spread on IWM to position for a pullback, or at least a slower rally than experienced lately.
IWM is the most overbought of the indexes advancing >5.5% in the past 3 weeks alone. This is an unsustainable pace that cannot continue. Keeping in mind that markets can stay irrational longer than any one trader can stay solvent, I executed a deep in the money Bear Put Spread.
The IWM position provides a nice buffer in the event the rally continues short term. I used Feb options to provide extra time for the position to work out if the rally does indeed continue short term. However, any further rally will be short lived due to the extreme overbought circumstances of the market.
The Weekly Advisory continues to outperform and deliver Alpha:
+5.30% YTD BookingAlpha Weekly Advisory
vs.
+4.48% YTD S&P 500
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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