Don’t Be Right, Just Make Money!

Today’s trading day was a little of a rotation day. Yesterday tech was active and everything else was quiet.  Today tech is taking a breather while the rest of the market plays catch up.  I keep watching the US Dollar index to see what it wants to do.  It’s consolidating at resistance.  Bonds are sitting on support.  Stocks continue to take shorts out back and humiliate them with word games.  What’s a trader to do?  Stocks tend to move in three’s and we’ve had 3 solid up days – 4 if you count yesterday.  There has also been a consistent habit of selling off into the final 15 minutes which didn’t happen today. For now, this market is overextended in the short term.  The NASDAQ, especially, looks like it needs a breather.  I’m expecting some sideways action and a small correction (as in 30 or 40 S&P points) over the next week or two, but I just keep telling myself over and over again, “Don’t be right, just make money.”

One strategy that has been working well this earnings season is the Post Earnings Move is Over Strategy (PEMOS). This is when a stock’s earnings numbers come out and the stock rips higher or lower by one monthly standard deviation or more. The move is over so what’s a trader to do? Well after a big move like this you can typically expect a sideways consolidation and as an options trader you can sell iron condors on these stocks every chance you get. Our subscribers did this with Netflix (NFLX) a few weeks ago. The latest PEMOS stock is LinkedIn (LNKD). Premium is still high and you can collect $1.10 on an iron condor one standard deviation out for the monthly May contract. If you were to set this up it would look like this:

LNKD ~ $181:

STO MAY 190 C (sell to open)

BTO MAY 195 C (buy to open)

STO MAY 170 P

BTO MAY 165 P

(excludes transaction costs, break-evens near $191 and $169, margin ~$4 per IC)