Keep Your Options Trading Simple: Trade Probabilities

|
 |  Includes: DBA, DIA, EEM, EFA, EWY, EWZ, FXI, GDX, GLD, IBB, IWM, IYR, OIH, QLD, QQQ, RTH, SDS, SLV, SMH, SPY, SSO, TBT, TNA, TZA, USO, UUP, VXX, XL, XLB, XLE, XLF, XLI, XLU, XLV, XLY
by: Andrew Crowder

What do you think about the markets here? A question I often receive from subscribers or the financial media. My response, I don’t care. Okay, that may be a bit harsh and overstated, but for the most part I really don’t care about the daily news that flows in and out of the market. I am an options trader. I trade strategies based off probabilities. Nothing new here. I just want to teach people how to trade effectively and profit by using my options strategies. Because knowing what is going on in the news and making money are two separate beings. For successful investors, its about your strategy, your logic, your process, it doesn’t matter what you think the market is going to do tomorrow. This is a concept that is often difficult for the newbie to options.

With that being said, there are several ETFs that have hit short-term extremes. Energy (NYSEARCA:XLE) is currently on my radar, so subscribers stay tuned. I am also paying attention to the dollar ETF (NYSEARCA:UUP) as well. The ETF has moved into a short-term oversold extreme.

You see, it doesn’t pay for me to try and absorb every financial story out there, all I care about is when my indicators hit extremes and a act on them to hopefully make a profit. I allow probabilities, not the talking heads, to define my options strategies. Anyway ...

We have had a few weeks of sideways trading and as a result short-term extremes have been nonexistent. Yes, there have been a few potential short-term set-ups, but they never truly entered into a short-term extreme. GLD was certainly close, but the trade never came to fruition.

I also, wanted to reiterate yesterday’s sentiment regarding the High-Probability, Mean-Reversion strategy. As we all know the strategy enters periods of stagnant trading. Again, this is a long-term approach to options trading and is to be expected. Boring – maybe to the aggressive crowd out there. But, I am more interested in the profitable trades. Trades that I am confident in due to the short-term extremes that have entered the stock market – high-probability trades. I think the win ratio and returns of my options strategy speak for themselves.

Ultimately, this whole endeavor is about creating and teaching you a successful way to make money using stock options. I have found that and again, I hope you can join me for the ride.

Theta Driver Options Strategy

The Russell 2000 (NYSEARCA:IWM) is four days into the August options expiration cycle and the high-beta index is now $1.10 higher than when I placed the trade in the Theta Driver options strategy. The credit spread that I added over 20 days ago, is worth $.66, or $.32 higher than the price I sold for the IWM credit spread. I am still quite comfortable with trade and will continue to allow the statistics to play out. Time decay should really start to set in over the next few weeks.

I will be issuing another credit spread trade tomorrow so stay tuned. I plan on adding a position in one of the hottest precious metals so stay tuned!

Here it is: the first trade in my new Credit Spread Options Strategy.

Market Mumbo Jumbo

Summary

SPY remains range-bound!

Nothing New Here: Not much has changed over the past few weeks - range-bound trading persists. I appears we could see the markets move sideways for a few more months. Are the summer doldrums already upon us? How long can SPY stay in this range of roughly $126 to $137? The question is, while I continue trading extremes in the HPMR strategy , how can I take advantage of the range bound movement at the same time. You guessed it – a credit spread!

Options Strategy Indicator – Overbought/Oversold Extremes

High Probability, Mean Reversion Options Strategy
(Click to enlarge)

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in XLE over the next 72 hours.