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Full Time Profits, January 25th 2017

January 26, 2017 By Steven Place

Well, we finally got it.

After spending two months in a tight range, the markets resolved to the upside.

Dow 20k got hit.

The S&P 500 is just a couple points away from 2300.

And stocks left and right are hitting all time highs.

Two thoughts on this market.

First, it does not make sense to start going “all in” by selling bear call spreads. The implied volatility on call options is quite low so the premium you receive on selling call spreads is also low. Further, it means that you’d be selling call spreads with a strike price closer than what you’d need to justify the risk/reward.

We just haven’t seen enough upside movement to justify it. There may come a time to do that, but it’s still early… we’re on day 1 of a market breakout.

Second, eventually retests happen. If you have a few minutes, go look at the S&P 500 when it makes new highs. It’s a high odds bet that eventually we will see some kind of a pull back to these levels.

That means you don’t have to chase. You don’t need to force your way into the market. As a Proactive Trader you should let the setups come to you.

With that in mind, we’re going to look at two new setups… one in the VIX. It will be a little advanced and a slightly different strategy from what we normally look at, but it’s still a good opportunity here.

Trade #1: BA

ba-1-26-17

The stock had a volatility pivot on earnings. It’s a very high odds bet that it will see PEAD (Post Earnings Announcement Drift). We can take advantage of that by selling put spreads with strikes just underneath the earnings gap, and then using 155 as a stop loss level.

Trade Setup

Expected Price: 167

Sell to Open BA Mar 155/150 Put Spreads

Tier 1: Enter at 0.50, Exit at 0.10

Tier 2: Enter at 0.80, Exit at 0.50

Tier 3: Enter at 1.10, Exit at 0.80

Extra Risk Management: Stop out of the trade on a close under 155

Trade #2: VIX

This one is a little advanced, but this opportunity doesn’t come along very often. The spot VIX closed under 11. And the VVIX, which measures how expensive VIX options are… that also came into new relative lows.

It does not make sense to try to fade the market with getting short a bunch of stocks… but long volatility makes a reasonable and cost-effective hedge against any existing long positions.

Trade Setup

Expected Price: 14 (Looking at Mar VIX Futures)

Buy To Open VIX [22 Mar 17] 15/20 Bull Call Spread

Pay attention! This is a bull call spread, not a bear call spread so we are buying at a debit instead of selling at a credit.

Tier 1: Buy at 0.75, Sell at 2.00

Tier 2: Buy at 0.60, Sell at 0.80

No Tier 3

Assume Full Risk On The Trade

 

Disclaimer

U.S. GOVERNMENT REQUIRED DISCLAIMER – COMMODITY FUTURES TRADING COMMISSION. FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY, SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN

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