How I’m Taking Advantage of Today’s Market Selloff

How I’m Taking Advantage of Today’s Market Selloff

Posted On May 4, 2021 3:42 pm

In the past few weeks, my mantra has been to “stay nimble.”  In other words,  being very selective on new trades and using strategies that could pay off within days. 

My reasoning for adjusting my approach is that I had hit a rough patch with earnings going into full swing — with some 300 of the S&P 500 Index (SPY) reporting over the past two weeks — something I wanted to sidestep. We get our earnings action fix in the Earnings360 service, where we’ve battled “sell the news” reactions keeping our head above water. 

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Oh, and the fact that the SPY has crept higher, up some 16 out of the prior 20 trading days, before putting in a bearish candle, had me sitting on my hands. 

sp 500 etf chart 2021

However, once I saw that price action, namely exhaustion at new highs, I decided to step in with a SPY put play.  I’m utilizing the SPY having Monday, Wednesday, and Friday expirations to employ what I’ve dubbed the ‘triple play.” Quick reminder: This is an options strategy where I buy puts with 10-14 days until expiration and sell the tri-weekly options to reduce cost.  

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In the Options360 Concierge Trading Service, we initiated such a trade on Monday, purchasing the May 14th 417 puts and selling the May 3rd 417 calls for a $2.90 net debit. We let Monday’s options expire worthless, and on today’s lower opening, we’re able to sell May 5th 415 puts for a $1.20 credit.  Meaning, we already cut our cost basis (risk) in half.  And we have the potential for three additional rolls before next Friday.  After just one day, this is already a near-lock for a profit, and if things work out, it could be a huge gain. In this case, being patient and waiting for a signal to sell is paying off. 

On the other hand, I established a bullish position in Advanced Micro Devices (AMD) which I thought had suffered enough following the previously-mentioned “sell the news” reaction to a storing report. We have time in that we own a June call and already made a quick adjustment.  

Overall, I’m glad I slimmed down the Options360 positions over the past few weeks.  Now, with a bit of a sell-off in play, I’m starting to see much more attractive setups.  

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.