Zacks highlights commentary from People and Picks Member «MightyMo».
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Why I sold puts yesterday but why I plan to possibly buy more
I will give you my rationale of why I plan to purchase additional puts (possibly as early as today).
Yesterday’s selloff involved quite a bit of computer stock selling. It’s been said that 70% of the shares traded of s&p stock shares on a given day are done by programmed computers. The algorithms used are top secret but as a individual investor I can take advantage of this by knowing that on big down days MACD can indicate to me what the computers are doing.
Even though the VIX was raising, the MACD for the last half hour was flat. This indicated to me that the programmed computers were no longer selling and that today could start out as an up day. That’s exactly what it is doing this early morning.
The premiums on the SPY puts however were continuing to increase and I felt it was a great opportunity to lock in profit.
Computer trading while feared by many, actually helps to keep volatility up. Volatlity, while difficult for investors to become accustomed to, actually benefits those of us who sell options. When the market pulls back in a big way, it marks an opportunity for me to sell puts. When the market bounces I often have a chance to purchase those puts back and get ready to sell them again.
Yesterday afternoon, with the VIX going up and the MACD flat, it told me the put premiums were OVER VALUED. This made an excellent selling time to lock in profit. By selling my SPY puts when I did I received a great premium for a very short period.
From a technical analysis standpoint, here’s the technicals I use. As stated previously, I look at the MACD. I look at the VIX. I chart and utilized Bollinger Bands and the Parabolic SAR. The parabolic SAR, if you chart program allows it to be shown is an excellent short term indicator of equity direction but dangerous. It needs to be used in conjunction with the other indicators.
Finally, I chart three moving averages – the simple 10MA, the geometric 20MA and geometric 30MA. Even using all these indicators, no one can predict market direction correctly 100% of the time but it does lower the odds in your favor.
I am using those today to sell if there is an advantage of buying the puts back.
There are a number of good strategies. This is one that appears to work for me. No strategy is perfect. I sure someone call find fault in it. However, good or bad, I hope you found it informative. Isn’t this better than writing blogs attacking people?
The most recent picks by «MightyMo» are:
A buy rating on Clorox (CLX),
a sell rating on Research In Motion (RIMM) and
a buy rating on Ross Stores (ROST).
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