Trading Update May 1st

Markets remained a mess until well after the FED minutes were released and the markets continued the weak sentiment felt in the morning session. SPY ended up around $158.20 to close out, offering up yet another obstacle for the bulls. Action today though felt like forced & very controlled selling. The Financial sector bore the brunt of the selling pressure today while the Tech/Internet names were able to hold up. Apple AAPL, for example, sold off a solid 10 points from the opening price but closed right in the middle and didn’t participate in the late day sell-off. This could be a way for the smart money to keep people convinced on the market going to all time highs while they slowly pull the rug out underneath everyone. Or it’s just simply another dip buy opportunity. Either way, a trader must stay unbiased so he/she can capitalize on both scenarios.

I spent the day taking advantage of some juiced up call premiums in Apple. Since Friday of last week, the stock has been slowly moving higher which has pushed the weekly call premiums up significantly. With the pullback in the markets today, it was time to sell some of those premiums and bet against further gains on the stock.

Since Friday, this stock has rallied about 30 points and the premarket action this morning was indicating that she may have some trouble continuing higher. The stock immediately opened up and sold off down to $440. After many twists and turns, it became apparent the buyers that have been so eager to price this stock up were taking a break. I was able to sell the premium around $2 on this $450 Weekly Call.

This strategy is really predicated on understanding sentiment and tape as well as timing alongside the broad indexes. The stock could have easily took off through $450 in which case I would have been up shitscreek shorting this option. However, the tape really showed me that buyers just didn’t have the stones to get this thing moving again to the upside. That opened the door up to an opportunity capitalizing on the high premiums that were driven by the recent rally.

Writing options can truly only be done with decent sized accounts. Credit spreads can be used in order to cut down margin requirements for smaller accounts but the big players are the ones utilizing this strategy on the regular.

Stick with Lucci!