The market finally took the short-term reprieve that we expected. We were able to take advantage of the expectations mentioned over the last few posts in our ETF Extremes strategy.
After the sharp rally last week our many of the indicators we follow signaled a buy alert on Monday. As a result, we bought 10 Jun07 SPY 145 puts (SFBRO) shortly after the open on Monday for $2.85. The extreme overbought situation coupled with the gap up in the S&P on 4/3 (that has yet to close) increased the probability for success in the trade. We mentioned several others in the daily commentary (blog) section of the site.
Today our indicators signaled a sell and as a result we sold the Jun07 145 puts (SFBRO) for an average price of $3.01, resulting in a 5.6% gain on the trade. Moreover, we did not want to risk losing our profits ahead of the fed minutes that were scheduled to come out at 2 PM EST.
We initially set our target price for $3.10 and were partially filled. However, the market bounced and we decided to lower our price target to $3.00. We were filled immediately and immediately following our fill the market moved back to $3.10 momentarily and then proceeded to bounce back up towards $2.80. After the fed minutes the bears quickly took control and the market sold-off. If I had my crystal ball in front of me I would have obviously held on, but given the situation and the risk involved (if the fed minutes were construed positively) I feel confident in the decision. I made it a policy early on that I would never complain about a profit. There will always be another opportunity to fry a bigger fish in the near future.
The sample portfolio is currently worth $7,265 or 45.3% (including commissions) since its inception (1/06). The win ratio in the strategy currently stands at 92.3%, 12 out of 13, (check out the
Performance page
on our site for further details).
Now the major benchmarks are back in a neutral position and there is what looks to be decent support below. We have a few more market moving economic reports out this week so we could see a choppy market over the next few days. The short-term reprieve that occurred also helped out our current SPX Short Iron Condor position. SPX is now 21 points below (1.4%) below our short call strike and another leg down or a few days of chop could lead to an opportunity to take some profits off the table. We will just have to wait and see what the market offers.
There seems to be decent support at the 1438-1440 area and strong resistance above at the 1450 level. I expect to see some chop in this range. Expiration week is next week which typically is flat to slightly bullish so we could see a retest of the 1450 area although I expect to see another failure at this level.
Overbought/Oversold levels for April 11, 2007
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SPY - 61.7 (neutral)
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DIA - 52.3 (neutral)
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IWM - 52.8 (neutral)
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QQQQ - 49.7 (neutral)
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GLD - 72.2 (overbought)
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OIH - 66.5 (neutral)
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Have a great night!
Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com