The Market is Making Trading Difficult

Sometimes we have to be patient when implementing trading strategies, especially when options are used.

A sideways market, such as the one we have now, does not always provide an opportunity to place a trade with big upside. Despite the challenge, I do have trades that I am recommending today.

Three weeks ago on April 20, we sold a call option on SPY that generated some nice income. We sold the call options at $1.65 to collect premium income for our brokerage accounts.

Now that option is trading at $0.45 and, once we get into the month of June, the time decay will accelerate. So far, we have a nice profit of around 70%.

However, the stock market continues to grind sideways. We don’t expect a market crash nor do we expect a breakout to new highs. In a sideways market, we can just move this trade idea out on the time spectrum. Here is today’s trade.

Sell to open SPY August $215 calls (SPY160819C00215000), which last traded at $2.25 and expires on Aug. 19. To reduce our risk on this trade, we are also recommending that we buy some protection. Thus, buy to open SPY August $220 calls (SPY160819C00220000), which last traded at $0.81 and expire on Aug. 19. This trade will net us $1.40 in income.

We also are recommending that you sell to close the VXX May $18 call option (VXX160520C00018000) and the USO May $10 put (USO160520P00010000). Sometimes time works in our favor, and other times it is prudent to get out of the way.

Best,

Doug and Tom