As usual, Greg Capra posted in his morning Trading Newsletter the mixed market internals but bullish bias based on the chart patterns and resiliency of the broader markets failing to break lower. With this morning’s gap up, I started looking for put selling candidates on bullish patterns on liquid stocks, if sufficient premium exists (and no earnings prior to expiry).
Searching for Put Selling Patterns That Pay in Low Volatility Markets
Today’s Wall Street Journal reported that “The past 30 days have been the least volatile of any 30-day period in more than two decades.” We are cognizant of that which makes option selling generally more difficult. We prefer selling premium on liquid stocks/options with high volatility; however, even in low volatility environments like we are in, each day we still find excellent put selling candidates. It is important to manage them per your trading plan and not get complacent in case the market sells off and volatility spikes (which hurts option sellers).
Let’s review a number of these patterns we found this morning and option trading candidates to give you examples of what we look for. Although there are numerous ways to trade each idea (e.g., different strikes or expirations), I’ll review what I did or am thinking. Because we are not expecting a large move higher in the market or most stocks, we are not focused on buying calls or using more aggressive bullish option strategies.
Above is a daily chart of CVS (mentioned in this morning’s Trading Newsletter) trading in today’s morning session. I am trying to short the Sep 94 and 95 puts with a stop under yesterday’s low. Note that because of the deep intra-day retracement, I will not be entering this one today.
PBYI and ALDR (mentioned in this morning’s Trading Newsletter) are bullish daily patterns as put selling candidates, but the spreads are excessive so that is a “veto” for me.
Above is a daily chart of XLF (the financial ETF) trading in today’s morning session. With this bullish breakout, I started looking for put selling candidates. I sold the Sep 23.5 puts for $.15/share, stop under the daily consolidation.
Above is a daily chart of GS trading in today’s morning session. I sold the Sep 160/155 put spread for $.54/share with a stop under $164.
Above is a daily chart of SBUX trading in today’s morning session. With its wide range reversal breakout after shakeout (failed break down), I was looking to short the Sep 54 or 54.5 puts with a stop under yesterday’s low.
Above is a daily chart of SEE trading in today’s morning session. With the bullish gap breakout, I am looking short the Sep 44 puts if the spreads tighten.
Above is a daily chart of MBLY trading in today’s morning session. With the bullish gap up and break out, I am looking to short the Sep 44 puts on an intra-day set up if the spreads tighten.
Above is a daily chart of TAP trading in today’s morning session. With the bullish consolidation following the massive shakeout last month, yesterday I shorted the Sep 90 puts for $.60/share and looking to add.
Above is a daily chart of DATA trading in today’s morning session. With the bullish gap breakout on the daily and weekly time frames, I am trying to short various strikes and expirations when the intra-day pattern sets up.
Above is a daily chart of MNK trading in today’s morning session. I have mentioned put selling candidates on it in the past and am still short the Sep 65 puts (all of my Aug short puts successfully expired worthless) . With the wide spreads, as long as the pattern remains bullish, each day I try to short various puts as “low offer” to not pay the huge spread.
Bear Call Spread Watch List
Although I said I would discuss bullish put selling candidates, a few short bear call candidates I am watching include: ZOES, SJM, REN, EWZ, LOGI, WYNN, GDX (on bearish daily retest) and BBY.
Happy trading! If you have any questions or comments, please e-mail Dan Gibby at Dan@gregcapra.com
