Friday was the big bullish day for the market. It pushed all indexes up to the areas around their previous highs, and cancelled out the bearishness from island reversal patterns I pointed out in the monthly review. In fact, the market forecast is giving a new buy signal today. I need to monitor this carefully.
The RUT never broke out to a new high and remain within its widening channel. This channel is a long flat sideways move originating back in early December.
Usually, with sideways trading I would be using Iron Condors with deep out of the money calls and puts. I am not doing that now, for two reasons.
First, the SKEW remains high - although back down to 131 today. This makes the OTM calls cheap, forcing me to trade close to the money.
Second, the risk is to the downside. With VIX so low, playing with puts is playing with fire if the market starts to sell off. Vix can explode higher and make the puts extremely expensive to move out.
Instead, I putting on at the money, or close to the money call spreads for large premiums. This way, if I have to move them out, I will still have a decent credit to work with. Also, any downswing is much more profitable, so they can be traded very easily.
I have this weeks NDX 5150/5160 call spread on for a credit of $5.20. I added a RUT call spread to the portfolio on Friday, also. I sold the 1385/1390 expriring this week for $1.70. I did add a put spread below the channel above 1335/1325 for 58 cents today also.
