Stocks are enjoying a big bounce today, recouping most of yesterday’s losses. I view this as a reflex rally and remain cautious. I’m unconvinced the selling is over. As noted yesterday, I closed bearing positions in the Invesco Power Shares (QQQ) and Hilton (HLT) for solid profits. The Options360 service is now up 24% for the year to date.
But I don’t want to be greedy and press my bets. Instead, I’m moving towards a more neutral position. As the infamous Jesse Livermore wrote in Reminiscences of a Stock Operator , “it was never the doing that made me money but rather the waiting.” That doesn’t mean I’m going to be sitting on my hands but rather I will be patient and wait for high quality setups that offer good risk/reward.
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Illustrating my more neutral stance, the one move I made today was turning the bearish Salesforce.com (CRM) bear call spread into an iron condor by selling a bull put spread. The stock had come down giving us a nice edge, and solidly in the green, but now it is balanced out with little risk. We just need to let time decay or theta do its thing and bring the profits in as the July 30 expiration approaches. Again, sometimes it’s doing nothing that’s most important.
But as Tom Petty sang, “the waiting can be the hardest part.”
Tomorrow I’m going to discuss how option trading has begun to dominate trading making it the tail that wags the dog and how that may help us unearth some unique opportunities. One hint, it is telling me to remain cautious and look for new bearish positions. But patience is the watchword.