Market Summary
The February 6th Investor Report mentioned "...most of the major stock index are at or exceeded their multi-year highs from last summer. The NASDAQ is actually at an 11 year high bringing back memories of the last tech bubble. Stocks may be taking a breather and consolidating gains generated over the past month or so..." As evidenced in the SPY 60 min. chart below stocks appear to be trying to take a breather as the major indexes are turning down from recent price highs.
Investor Analysis
A slight stock price pullback is normal in this type of bullish market where prices basically have gone up unabated since the end of December. A market pause provides an opportunity for investors to consolidate recent gains before continuing higher. Also, if the downturn continues this might be an opportunity for easy downside profits.
Possible Strategy
If the downside move continues, some investors are considering debit spread strategies to profit from the S&P 500's possible move lower. For example, trading a SPY March option expiration long 135, short 132 debit spread would cost $1.10 (based on yesterday's close – buy the 135 @3.10 and sell the 132 for 2.00), but would generate $1.90 profit if the SPY dropped below 132 anytime prior to March 16th (calculated as 135 minus 132 = $3.00 credit, less the $1.10 debit to buy the spread)
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By Gregory Clay
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