How My Cautious Outlook is Paying Off

How My Cautious Outlook is Paying Off

Posted On July 16, 2021 12:26 pm

Over the past week I’ve voiced my cautious stance on the market and even suggested a correction, defined by a 10% decline, could be in the works. 

The main reason for my caution has been the deteriorating breadth in which fewer and fewer stocks were moving higher.  For the most part, it has been mainly the mega-cap tech names, such as Apple (AAPL) and Amazon (AMZN), carrying the indices higher.  Now we see those stocks have begun to lose steam and the Nasdaq-100 (QQQ) is set to post its first losing week since the end of May. 

Given this cautious outlook, the Options360 trading service has acted accordingly. I’ve paired the bullish positions down to just Wal-Mart (WMT) and Akamai (AKAM) which have been holding up well and show modest profits. 

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More importantly the only new positions I’ve established are both bearish.  The first is a bear call spread in Salesforce.com (CRM) and the second is a ratio backspread in the Invesco QQQ Trust Series I (QQQ).  The latter I initiated some 10 days ago was originally a diagonal spread so I could take advantage of the Monday, Wednesday and Friday expirations to perform multiple rolls to collect premium.  The cost basis now down to a mere $40 for the 2×1 contract position, it is showing a profit of around $350 and will expire on Monday. Meaning I basically have no risk with the potential for further gains should the market have a big down come Monday. 

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Other than that I’m being patient and will likely focus on opportunities that arise from earnings reports, which will start coming in fast and furious next week. 

Enjoy the weekend.  

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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.