A pullback is getting more likely every day, and the longer it is put off, the more severe it will be. Nervousness about sequestration may be the trigger.
Start preparing. Think about every open position you have. With volatilities still very low, protective puts can be cheap insurance. You don’t have to protect against all declines. Just adding a single at or near the money, 60 to 120 days out put, whether on a specific stock or on an ETF or index, can turn what would have been a large drawdown into a small manageable one.
You can take profits. That doesn’t have to be an all or nothing affair. You can close larger positions in stages.
You can start initiating bearish trades. But in this hard-to-kill bull market, they will be low probability trades and you better know how to adjust any and all such trades.
In the meantime, the pause in market activity offers opportunity to get profits and experience with income trades.
For instance, Calendar trades are positive-Vega trades. You ideally want to find a good quality company, with a slight upwardly-biased seasonal track record, that has been moving mostly sideways. It should have very low volatility, with the odds far more likely the Implied Volatility on its options will rise than fall (a positive Vega trade will increase in value when IV rises).
The best scenario is you put on the calendar trade and the stock slowly meanders upwards.
Calendar trades are not high probability trades, but they are a trade strategy you should master for regular income into your portfolio.
Calendar trades require adjustment more often than many other strategies, but they can work when few other strategies will. Learn how to adjust them. There are many possibilities, mostly involving moving or rolling the short or the long call, within the same month or to a different month. Paper-trade calendars to gain experience.
Calendar trades are good income trades, but you need to keep doing them over and over to gain the experience. They are not ‘fire and forget’ trades. Master them, and you can quit your night job as a lounge singer.
In today’s Seasonal Forecaster, I focus on a stock with the ideal characteristics to start learning Calendar trades with.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal-forecaster
By Gregg Harris, Market Tamer Chief Technical Strategist
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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