HOT TRADING STRATEGIES FOR A COLD MARKET
Daily Stock Market Equity and Options Trading Commentary

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Wednesday, January 7, 2009

SPY PUT'S Outweigh CALL'S BIG, But I'm Still NOT "that" Bearish

The top 4 traded option contracts today were the SPY JAN 91, JAN 90, JAN 92, and JAN 93 PUTS. The SPY according to TDAmeritrade is: "The investment seeks to correspond generally to the price and yield performance, before fees and expenses, of the S&P 500 Index. SPDR Trust is an exchange-traded fund that holds all of the S&P 500 Index stocks. It is comprised of undivided ownership interests called SPDRs. The fund issues and redeems SPDRs only in multiples of 50,000 SPDRs in exchange for S&P 500 Index stocks and cash". This indicates many are bearish on the market at least for another 10 days. The JAN 90 PUT (with 10 days left until expiration), which is not yet in the money, traded as high as $225 per contract and closed at $191 per contract up over 74% today. I am a bit surprised to see this many bears in the market considering Obama will be announcing a more detailed stimulus plan tomorrow, and with his inauguration coming in less than 2 weeks.

Therefore with the market getting hammered today, I sold some covered calls on my SDS for a juicy premium, and speculated by buying the FEB 30 CALLS on EEM for $65 per contract, and the FEB 30 CALLS on SSO for $120 per contract. I was waiting for a pull back in the market to purchase both of these CALLS, so today I finally got my chance and unloaded. I plan to swap out my cost if the market is stronger tomorrow and hold some "free" contracts until expiration. So with the money I received from selling the SDS covered CALLS, I turned into a speculation bet on EEM and SSO. These are the types of gambles I like to take!

We are about flat for the first 4 trading days of the year and tomorrow being the fifth trading day of January, which if you follow historical data, the probability is high that the first 5 trading days of the year will indicate the direction (+/-) for the entire year... So we'll see how we finish tomorrow. Personally I think and hope the worst is over, therefore I have completed all of my shorting for the time being. I still hold some SDS which I cannot seem to get called out on (my cost basis is below 40 a share now with the covered calls I have been writing!


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