It Is Important To Sell Spreads

Make sure you are selling OTM spreads to generate income. Day trading will be tough.

PRE-OPEN MARKET COMMENTS WEDNESDAY – Buyers and sellers are battling it out and we saw huge swings intraday after the CPI release. The PPI will be released Thursday. Retail sales came in better than expected this morning (3%).  

Let’s keep this short. I like that the market has been able to tread water when the headlines have been bearish. That tells me buyers are interested. I am not looking for a runaway rally, and there are still plenty of dark clouds that can produce pullbacks. I am not worried about a major market meltdown. At this stage of the tightening cycle that would only happen if there were a credit crisis and there are no signs of it. Emerging markets have been strong.  

Swing traders are long SPY at $409. We will hold without a stop. Sell bullish OTM put spreads on strong stocks. If you have a neutral bias, sell OTM call spreads on weak stocks. Take advantage of this trading range and generate income while we wait. SONO was a stock I highlighted in my video last week and BA was a stock I highlighted in my video yesterday.

Day traders should be cautious on “inside days”. This is low probability chop. If the volume is high and we are outside of the range, we might get an occasional trend day that we can get behind. Otherwise, if the volume is high and the candles are mixed, you can expect intraday swings. That is when you go into scalping mode. Some of the swings can be substantial like the one yesterday. If the range is tight, you have to be very nimble.

I encourage all of you to start selling some OTM option spreads to generate income. The market backdrop has changed. Establish them based on your market bias. Day trading will be tough and these core positions will help you make money when we have dull days.

Support and resistance are at the high and low from Tuesday respectively and this is likely to be an “inside day”.