Yesterday we were treated to the latest interest rate hike from the Federal Reserve and a speech and Q&A with Fed Chairman Powell that apparently wasn't well received by the market as stocks slid furiously into the closing bell and continued the selloff into this morning.
Where we go from here is anyone's guess. Still, I'd like to take the opportunity to continue taking advantage of consistently elevated options premiums and put on a delta-neutral credit spread in an area of the market where I think some sideways rangebound action may be setting up into the end of the year.
"Old Economy" stocks are drawing our attention again.
Our Head Technical Analyst Steve Strazza says: "these old economy stocks are all beating earnings and taking leadership roles" and he cites companies like Caterpillar $CAT, Deere $DE, as well as energies, homebuilders, and transportation stocks.
Today's trade is an expression of the continuation of this theme, and our target stock is offering us a nice pullback to enter into.
We continue to be handcuffed by earnings season. Some of the best setups we like right now are in stocks slated to announce earnings over the next week or two. As an options trader, I don't like to position ahead of imminent earnings announcements. That is tough binary risk to control.
Today's trade has earnings coming up in a little over a month from now, so that'll have to do. At least it gives us some time to build a little cushion. Because if we're wrong in this trade, it's likely we'll find out pretty quickly over the next two weeks.
I was talking with a relatively new day trader last night at my twice-monthly trader meetups here in Colorado. We were chatting about stop losses. Or more specifically, his inability to stick to his “mental stop loss levels.”
As you can imagine, this was leading to him taking occasional big losses – which were wiping out good runs in the market.
He’d make a few hundred bucks several days in a row. He’d then lose it all (and then some) on one bad trade.
A lightbulb went off in his head when I reframed the importance of not taking big losses. No doubt many of you are shaking your heads and uttering – duh!
But for this gentleman, it took me breaking it down this way for him to get the picture:
I dunno why, but thinking about train tracks and rail stocks got me thinking of Blue Steel. There is absolutely no connection between today's trade and the pose made famous by the Zoolander film. But, you're welcome.
It's that time of the quarter where we options swing traders need to be extra mindful of pending earnings releases. The last thing we want to do is place a directional bet in a stock or it's options heading into a binary event that could decapitate us in a heartbeat.
This is frustrating us right now because most of the charts we like best (both the bullish and bearish ones) are in stocks with earnings slated to be released in the next week or two.
During our morning Analyst meeting today, we discussed the fact that many of the banking/financial sector stocks have already reported earnings by now, therefore, this is a place we should look.
Specifically, we like the big money center mega/multinational banks that are represented best by the $KBE ETF. Here is a chart that paints a pretty good picture of why we like it:
While this certainly is not the market environment to be taking aggressive long bets in, there are some stocks that are displaying tremendous relative strength that we can play with strictly defined-risk positions to protect ourselves.
Our Young Aristocrats Report shows us stocks that aren’t just paying dividends but are doing so while they’re going up and thus paying us via price appreciation as well.
And this week's report serves up a great opportunity.
Look, we're not going to sugarcoat it: it's hard out there right now.
Regardless of your timeframe, if you're trying to make aggressive long or short bets in this tape, you're getting chopped up. So are we.
These types of markets grind us out and wear us out. It is what it is. We can't choose the market we're given, we can only control how we react to it.
This much we know -- forcing directional bets right now feels like a fool's errand.
But with options premiums elevated across the board, there are opportunities to put on delta-neutral short premium trades where charts suggest some consolidation may be taking place. However, we need to be careful not to sell premium on stocks that have earnings releases coming up soon. So to avoid that all together, we're going to limit our universe to index and sector ETFs.
That is not a typo. I lost money on this trade. Actually, it was a series of trades. But it was executed with one decision and one combination of keystrokes.
It was the summer of 1998, and it was my first year trading.
The Long-Term Capital Management debacle was weighing on markets. There was money being made on the short side. Big money.
Many of the more successful traders in my office had already earned a boatload of cash with aggressive short trades on this particular morning. And at lunchtime, they decided to head out to the golf course to celebrate another day of crushing the markets.
But not me.
Nope, I was still a piker trader at that time, still trying to figure out how to stop losing money. So while the rest of the guys were high-fiving each other on the way out the door to the golf course, I stayed at my desk banging keys, trying to catch up to the big shots.
As we moved through the sleepy lunch hour, markets were showing signs of another leg down and I was building a short position in about 8-10 stocks. Slowly at first. Small amounts of shares. Nibbles, really.
