MTM Options Trader Newsletter - Bear Put Spread – The Right Time for This Options Strategy

This Week in the Market The Dow and S&P 500 ended the week trading around their 50-day moving averages and above their 200-day moving averages. The big question is, which direction will they go from there and when? The VIX closed lower for the week. Meanwhile, the September nonfarm payrolls numbers that came out Friday will be digested over the weekend. Money managers will then apply their analyses to update their asset allocation models for the start of trading on Monday. Payrolls increased by only 194,000, compared with the 450,000 anticipated. This allowed dovish traders and market prognosticators to argue that the Fed could delay its taper announcement past November. Digging even deeper beyond the headline number warrants a tad more hawkish outlook toward short-term interest rates. Notably, the private sector jobs numbers increased by 317,000, which did not miss estimates nearly as much as the headline numbers did. The unemployment rate was 4.8% vs. 5.2% in August, and average hourly earnings increased by 0.6%. Worries about inflation pressures have been building due to supply chain-related constraints. Rising oil and other commodity prices were markedly higher, confirming traders' inflation concerns/expectations. West Texas Intermediate Crude Oil contracts briefly topped $80 per barrel for the first time since 2014. The Senate approved postponing the debt ceiling increase impasse issue, which essentially kicked the debate on this major issue down the road until Dec. 3. Lest we forget, we're plunging headlong into Expiration Week smack dab in the middle of the Season of the Witch. Strange and scary events often affect the markets in October for some reason. Be extra careful this time of the year!

Oct 12: JOLTS Oct 13: CPI and FOMC Meeting Minutes Oct 14: Jobless Claims and PPI Oct 15: Import Prices, Retail Sales, Business Inventories, Consumer Sentiment Read Our Blog

Bear Put Spread – The Right Time for This Option Strategy There are multiple strategies for an options trader with a bearish, bullish or neutral bias. If a trader has a bearish directional outlook, he can use a long put option strategy to capitalize on an underlying moving lower. But sometimes buying a put option can be riskier than the trader wants because of potential price swings (delta), volatility (vega) or time decay (theta). A better alternative could be to buy a debit put spread (bear put). But when is the right time to use this options strategy? What Is a Bear Put Spread? A bear put spread involves buying a put option and selling a lower strike put option against it with the same expiration. The cost of buying the higher strike put option is somewhat offset by the premium received from the lower strike that was sold. The position also has negative and positive options greeks that are potentially more neutral than a single leg position. The maximum gain on this spread is the difference in the strike prices minus the cost of the trade. The options trader will realize this maximum gain if the price of the stock is at or lower than the short put's strike at expiration. The most the options trader can lose is the cost of the spread. This maximum loss will occur if the stock is trading at or above the long put's strike at expiration. Continue Reading ... MTM Watchlist Here are a few names to consider trading next week that we may discuss in group coaching class: LPX – Louisiana Pacific is a familiar name to keep on the radar, especially given its exposure to the home remodeling market, which is hotter than Georgia asphalt. Even if the housing market cools due to supply chain restrictions, remodeling should hold up well. Relatively tame valuation and technical analysis yield an impression that LPX may hold up well through a shaky Season of the Witch. OSK – Trucking company Oshkosh is experiencing many supply chain headaches that could affect profitability. Both Oshkosh and competitor PACCAR (PCAR) cautioned investors that semiconductor shortages are impacting vehicle deliveries and subsequently Q3 revenue. A higher volatility regime and pricing pressures may persist in this sector due to these challenges. BAC – Bank of America stands to gain from rising rates, which many predict are headed our way soon as the Fed will need to curb inflation. The financial sector picked up some steam recently with the concurrent higher long-term interest rates and sustained low short-term rates. Banks love a wide spread, which increases margins on their lending activity. Nine out of 10 times this yields good news for profits at consumer banks like BAC.

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The strategies in this newsletter are for educational and informative purposes only. All information disclosed in this newsletter should not be considered complete in its entirety. Market Taker Mentoring, Inc. will not be held responsible for changes, oversights, errors or omissions. Dates, prices, news and other information may not be accurate. Please verify all information before trading. You alone are responsible for your own investment decisions. Options involve risk and are not suitable for all investors. Before trading options, please read Characteristics and Risks of Standardized Option (ODD), which can be obtained from your broker; by calling (888) OPTIONS; or from The Options Clearing Corp., 125 S. Franklin St., Suite 1200, Chicago, IL 60606. No statement in this newsletter is intended to be a recommendation or solicitation to buy or sell any security or to provide investment or trading advice. Traders and investors considering options should consult a professional tax advisor as to how taxes may affect the outcome of contemplated options transactions. Copyright Market Taker Mentoring, Inc. 2008 - 2021. All rights reserved. Reproducing or redistributing this content is a violation of federal law.

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