Analyze Stock Charts for Bull Put Spread

In order to take advantage of this strategy, you are not going to try to predict where the market or a stock will go to in a short time frame, usually within thirty days or sixty day maximum, but where the market likyly WILL NOT GO TO in that allotted time frame. With this approach, you will have more than one way to win. When you sell options, your only concern is for the market to not go past the OTM options strike that you are short. That is paramount important in this Bull Put Spread strategy. When you sell an OTM options, or OTM option spread, you can win in three different market scenarios as opposed to the buyer only having one winning scenario.

A Bull Put Spread is definitely a bullish strategy. As a result, when you look at a stock chart, you must definitely take into consideration the trend of the underlying security. To place a successful trade, you want the stock either moves up or doesn’t move at all. For this reason, it is vitally important to place this trade in correspondence of a strong point of support. What I recommend is to scan stocks and pick the ones which are being traded close to a point of support previously detected. Then, try to place your Bull Put Spread by selling the OTM strike that is roughly at the same level of that support point or a few point lower as a safer bet and buying a further OTM strike.

Before placing a trade, make sure that there is no significant macro or micro market-moving news or earnings release until the expiration of your options.

Here is an example that I will use Bull Put Spread to earn some income on Google (NASDAQ:GOOG).

... (to be continued)

Market Turbulence

I have been experiencing lots of interesting and breathtaking ups and downs in the market for the last couple of months, especially in the financial industries. The breakdown of Bear Sterns was a weak-up call for the US Federal and authorities in the bank industry. The interesting thing is that government and Fed always stand behind and support this industry to the best they can. Just right after the Bear got exhausted, the Feb held meetings, even in the weekend, and announced another rate cut, and pumped more liquidity to the financial market. The reason is obviously the important role of the financial institutions in this giant economy. However, the Fed's action was a little too late for the Bear to recover by itself. The Bear story also told what big investors could do to protect their investment. Those big investors gathered together and speculated to pull the share price of Bear Sterns up, leading JP Morgan had to increase the bid from a little over $2 to over $10 per share. Interesting.

I have never seen such a sensitive market like this. It tends to over-react to any piece of news from any entities, including companies, government, of course, and even from nowhere. There are lots of rumors about Lehman Bros, Citibank and Goldman Sachs... Every rumor and news leads charts to tumble and rally like yo yo. That's why I think it is the time for investor to take a break from trading, just sit back and observe. Still, there are a few industries doing really well, such as industrial commodities, agriculture commodities, new energy... However, I believe industrial commodities like gold, oil and gas, etc. tend to turn a corner and hit the wall any time. Agriculture and new energy still have a long future ahead to shine. It is better to be on the safe side tho; if you want to play with these industry, I would recommend to buy deep- in- the- money call option with long expiration date, or sell out- of- the money naked put if you would like to earn some extra cash up front and wait to own these shares when they go down to your comfort level. Some blue-chip that I am still in love with are RIMM and AAPL. They were hit by the market turbulence, but not that bad. Wow, there are still lots of opportunities in the jungle out there. Be safe, though.