Today's price action had the bears extremely excited for most of the day. While most experienced traders expected some support at the 1400 level, I am not sure that anyone was expecting the bounce that we witnessed during the latter part of the day.

I am still somewhat bearish. My thought is that we will eventually see the two SPY gaps (11/19 and 11/29) from November close over the coming month. But as we all know, there are no guarantees. No one holds the holy grail to trading.

Which is why I always make trades with a margin for error. Credit spreads allow me this benefit... and since I have a short-term bearish view, a bear call spread is my strategy of choice.

What Is A Bear Call Spread?

A bear call spread is a credit spread composed of a short call at a lower strike and a long

Any time you make a bet with the best of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose the bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet.

-David Sklansky, The Theory of Poker

As I always say, investment success comes from process. Let me explain.

Back in my early 30s when I was privileged to live in sunny Flagstaff, AZ, I would take the reasonably short drive to Las Vegas so that I could make one the best bets in the gaming world.

For those not familiar with the game of craps, the free odds bet placed behind an opening pass line bet carries no house edge. The casino

Before I get to some market info, I want to go over a few options trading basics.

The first, and most important, step in options trading is to create a watchlist of highly liquid, optionable stocks or ETFs. This will be the foundation of your all your trading endeavors. The reason you MUST only use highly-liquid stocks or ETFs is so that you can rely on pricing efficiency.

The more liquid the option, the tighter the bid/ask spread. This is extremely important because the bid/ask spread impacts the cost of using options. Wide bid/ask spreads eat into the potential profitability of your investment, and contribute to what is known as "slippage."

The easiest way to search for what I call "tradeable" options on ETFs or stocks -- Volume. I look for ETFs with an average volume over 1 million shares traded because I want liquid options. Sometimes the 1

It's finally here. The December expiration cycle ends on Friday, and the upcoming week should be a wild one.

The push higher today was impressive. I have to admit, I didn't think the bulls had it in them to push the S&P's to 1428 (/ES). The move pushed several of the highly-liquid ETFs I follow back into a short-term overbought state. Couple the overbought readings with several bumping up against strong overhead resistance, and the pot odds start to lean more towards the bears. Look at the euro-related ETFs, South Korea and the Emerging Markets, for starters.

Admittedly, I would love to see a move lower over the next few days so that I can either adjust or exit a few bear call spreads in

Trading often appeals to impulsive people, to gamblers, and to those who feel that the world owes them a living. If you trade for excitement, you are liable to take trades with bad odds and accept unnecessary risks. The markets are unforgiving, and emotional trading always results in losses.

---Alexander Elder, Trading for a Living

I love Mr. Elder's quote. It embodies the typical retail options trader. Why do you think the most popular options strategy among retail options traders consists of buying out-of-the-money straight calls and puts? There is a reason why out-of-the-money options are so cheap; it's because they are the equivalent of buying a lottery ticket. And gamblers love lottery tickets. Look no further than the hype around the latest Powerball jackpot.

But unlike the typical lottery system, where the seller of the ticket pays only a small portion of the overall proceeds in the form of

With the exception of a few highly-liquid international ETFs that I follow, all of the participants in the High-Probability, Mean-Reversion Indicator pushed back into a neutral state yesterday.

The sell-off that began shortly after Big Ben spoke on Wednesday really gained momentum on Thursday and has given all of my credit spread positions some much needed breathing room. But, we should not look at the recent test of our short strikes as anomaly.

Remember, even though I begin most of my credit spread trades with a probability of success around 85%, the probability of actually touching my short strike is approximately half of my probability of success (or Prob OTM).

You could also look at it by taking the delta (in this case since we have a probability of success of 85% our delta would be roughly .15) and double that amount to get our probability of the underlying ETF

To be frank, Big Ben's announcement Wednesday was a dud.

Unless…

You are currently bearish. And if you are leaning to the bearish side you just might have something to grasp onto going forward- at least over the short term.

Shortly after the announcement, the S&P (SPY) and Dow (DIA) moved higher, but the higher-beta Nasdaq 100 (QQQ) and Russell 20000 (IWM) never gained any traction. This was the "tell" that should have forewarned the bulls what was soon to come. As soon as Bernanke took the stage at 2pm EST, all of the major market benchmarks began to crumble and continued so well into the close.

But, what is interesting is that we still have quite a few very overbought ETFs on a short-term basis. Until those are resolved, I would expect to see a continuation of the recent decline. A part of me thinks

The beauty of out-of-the-money credit spreads is the fact that I can be completely wrong in my directional assumption and still be profitable.

Even with the current extended rally into very overbought territory, my credit spread positions are still profitable… none of my short strikes have been breached. And with almost every ETF I follow in an short-term overbought state, I still expect to see a reprieve over the next few days because this is the most overbought we have seen

A Few Random Thoughts

Before I get to the nitty-gritty I want to discuss a few random thoughts.

It's been twelve days of range-bound trading for the S&P 500 (SPY). The benchmark ETF has been stuck between $140 and $142.50, but the journey through limbo land could be over soon enough.

The march into a short-term overbought today could be the last gasp for the bulls. The bears have been salivating waiting for the opportunity to push this market and the pot odds say its a go. The move since November 16th has finally extended itself so the odds are heavily weighted towards the bearish side.

If you had employed a few out-of-the-money bear call spreads over the past few weeks you should be in very good shape right now. A high-probability spread would have created a large margin for error just in case the bulls manage

Okay, that had to be one of the most uneventful weeks of the year.

The S&P 500 (SPY) closed the week completely flat. Great for those of us who sell credit spreads, but horrible for the directional traders out there (time decay is their enemy).

As for the Dow and Nasdaq, they moved opposite directions. The Dow advanced 1%, while the tech-heavy Nasdaq 100 lost -1% thanks to the recent declines in Apple (AAPL).

As we head into next week, all but the Nasdaq 100 (QQQ) is in a short-term overbought state. Couple the overbought readings in the major benchmarks with a plethora of extremes in the other highly-liquid ETFs I follow, and you can quickly see what side I will be leaning towards as we head into next week.

Quick Options Primer

I am often asked about how I come up with the probability of success percentage that I

It's been tough to be a bear as of late. Over the last fourteen trading days the major benchmarks have managed to surge significantly higher. DIA, SPY, IWM and QQQ have rallied 4.8%, 5.2%, 6.5% and 7.4%. But when you take a closer look, it only took the major benchmarks eight trading days to make those gains. The last six days have consisted of nothing buy sideways trading. And given the recent build up, I expect the jobs report tomorrow will produce a few fireworks. I am still positioned for a bearish move, as most of my trades recently have all been bear call spreads. But I am far enough away from the at-the-money strike (current price) that I have a margin for error just in case IWM or SPY moves against me.

With IWM and the DOW currently in an overbought state, as well as numerous other highly-liquid ETFs

I recently went back and forth with a gentleman who claimed that there are no statistical advantages in investing.

I asked him if he had ever used credit spreads or was familiar with the term probability of success. I wondered if he was familiar with the Black-Scholes model or binomial models in general. Did he have a sound grasp of mean-reversion or standard deviation.

No, he just wanted me to read a chapter from a book. As if in that one chapter, the author was able to defy mathematical science, more specifically probabilities.

Believe me, I get it. I understand that self-directed investors have been accustomed to listening to fundamentally and technically-based information. I understand that the curve-fitting is what gives a false edge to what is otherwise a statistically-inept way to invest. I get it.

But that doesn't mean that I have to agree with it. No one wants

The Statistical Truth

I hate to say this about some of my fellow options traders, but I can't tell you how much I abhor those in the industry (you know who you are) that absolutely ruin the true benefits of options for the self-directed investor. Claims of outlandish 300%, 400%, 1200% in just a few days. Encouraging the use of low-probability out-of-the-money puts as a predominant strategy without the mention of selling premium.

It's frustrating. It's frustrating to see so many so-called gurus with no real-world experience act as options traders when their services fail time and time again. Again frustrating.

For some reason investors don't crave what's truly important, realistic strategies with realistic gains. Transparency. Knowing that trading isn't easy and is a life-long endeavor and that while the journey may be bumpy at times over the long haul it is worth all of the effort. A long-term approach

The rally that began during the holiday shortened week has continued to the dismay of the bears. However, 1410 on the S&P was the area that most of my contrarian friends were anticipating and well, we're there. I expect the next few days to be quite bearish, but as we all know, no one knows owns the directional crystal ball… which is exactly why I choose to use credit spreads. Credit spreads, more specifically out-of-the-money bull call, bear put and iron condor spreads, gives me a nice margin for error.

The December expiration cycle is a bit too close to create a decent margin for error. The premium just isn't there. So, going out to January would be the ideal move. Anything between 56 and 26 days is preferred, so with January expiration in 50 days, now is the perfect time to sell a few credit spreads. With the VIX

I am often amazed by the lack of common sense when it comes to investing.

Investors seek the best possible information, but unfortunately most turn to the wrong sources.

For starters, turning on the television for investment advice, in most cases, is a big no no. Yet, how many people listen intently to the daily drivel coming out of screaming mouths on CNBC. Investors, particularly traders, should know that every trade spouted from these sources have a 50% chance of success. Add in transaction costs and the probability declines further. Yet, the majority of investors and traders take this approach, mostly because they are not privy to any other form of investing. Self-directed investors are not aware that there are strategies based purely on probabilities, not gut-driven analysis.

For instance, take a look at the year-end targets for Goldman Sachs. Chief Equity Strategist David Kostin has been adamant

As the old Wall Street adage goes, "don't sell a dull market".

The S&P 500 came into the holiday shortened week in a short-term "very oversold" extreme. So the bounce this past week came as no surprise. It was the magnitude of the bounce that surprised many.

The S&P as seen through SPY climbed 3.7% in a little over 3 days.

But now, the bears are salivating as the potential odds move back to their side… at least over the short term.

As seen in the chart below, not only SPY, but all of the major market ETFs have pushed into a short-term overbought state. Moreover, several sectors have moved into a "very overbought" state. Couple the aforementioned extremes with strong overhead resistance and you can quickly see why the bears are excited. This is exactly what they wanted (check out

I am often asked about how I come up with the probability of success percentage that I refer to in many of my reports. I currently trade two options strategies (I hope to add a few more in the coming months). One of my strategies is a directional strategy using short-term overbought/oversold measures based on my high-probability, mean-reversion indicator. I play the strategy by using straight calls and puts.

The other strategy, and indeed my favorite, is the Theta Driver strategy where I sell out-of-the-money vertical spreads with a high probability of success.

So, what do I mean by a high-probability of success.

The answer is quite simple.

Take a look at the following options chain:

If you look at the far left side of the options chain you will notice a percentage-based number. This is the "probability of expiring" or the probability that the underlying, in this case SPY,

It was an amazing day in the market if you are a bear. Not because the decline was anything to write home about, but because the latest daily trend was broken.

The trend - open lower, close higher.

Today's price action - open higher, close lower.

Of course, we will need some bearish confirmation over the next several trading days, but I think with the current amount of lopsided bearish indicators in the market the probability of a continued move is high.

Almost every indicator I follow is now in a bearish state and there are more notable bearish stats from sentiment analyst Jason Goepfert to add to the list

The first is the Fear Barometer from Credit Suisse. According to Mr. Goepfert the barometer has nearly set a record, meaning that there is heavy demand for put protection on the S&P 500 (SPY). The previous times it hit

Yet again, the bears stumbled mightily during the final hour of trading Tuesday. As Jason Goepfert of Sentimentrader.com stated, "The late-day rebound saved the indexes from suffering what could have turned into a relatively large down day. That marks day #30 so far this year without a 1% down day, the 14th-longest streak since 1928."

It is expiration week, so moves like today's are to be expected, but the price action today was indicative of the last several weeks - down at the open rally towards the close.

The low volatility market has been frustrating for most traders as most of us tend to take short positions as the rally moves further and further into the outliers of the bell curve. We all know there is the inevitable reversion to the mean particularly when we reach these types of levels. The problem is that we often get in to early.

Okay, I think we all know my bias at this point. For those who don't, it's bearish. I am not going to bother going into why I am bearish. Just read my posts from the last few weeks to truly understand why I am currently bearish.

So, I want to talk about something more important today - strategy. More specifically options strategies. With options, you can control with precision, the amount of risk and type of risk you wish to take in any given trade in any situation. One of my favorite strategies is selling vertical call/put spreads like in the Theta Driver Options Strategy. Let me explain. And please understand I am keeping it simple for conceptual reasons. Once, you understand the basics we can really dig deep to understand how to apply risk-management.

For example, if a trader who only trades stocks or ETFs (not options)