SPY PUT Once Again

SPY PUT returned to my trading today with what ended up as a simple trade. When I indicated yesterday morning in my Market Timing / Market Direction call for Nov 8 that I thought the market could roll over, I didn’t assume it would do it in one day. But the collapse today was excellent for my SPY PUT trade and it was almost picture perfect using the ultimate oscillator yet again.

SPY PUT – GAP DOWN OPEN IS THE SIGN

When I see a great big gap down open I immediately set up my charts to follow the S&P (SPX) and the SPY to get ready for my SPY PUT trade. I set the ultimate oscillator with the settings below and watch the 1 minute chart.

Ultimate Oscillator settings for my SPY PUT Trade

Ultimate Oscillator settings for day trading the SPY Put hedge

TYPICAL BEAR MARKET PLUNGE IS AN EASY TO PLOT ROLLER COASTER FOR THE  SPY PUT

On big down days like today, the market will normally try to recover allowing me to purchase my SPY PUT contracts and then probably sell into the afternoon and perhaps have a really late rally and then sell into the close. This roller coaster is actually typical of a bear market plunge. Remember how I wrote that bear markets have spine chilling falls and hair-raising rallies. Today was a spine chilling reminder that the bear is alive and well. Today though the SPY PUT trade was text-book.

At the open it was a matter of wait for the rally and the overbought indicator on the Ultimate Oscillator. Then hold on for the oversold indicator and sell my SPY Put contracts.

SPY PUT CHART FOR NOV 9 2011 TRADE

Below is the SPY Put chart for Nov 9 2011. The overbought indicator on the ultimate oscillator came before 11:00 AM. I bought 20 SPY PUT contracts and went out to Dec 17 expiry.

I picked the $125.00 and bought all 20 for $4.88. The S&P continued to rise and interestingly the SPY showed oversold around 11:30 AM. This though was caused by the little rally which followed after I bought my SPY Put contracts and then the quick selling before the market climbed higher. I ignored that oversold indicator not only because I wouldn’t have made anything in my trade but because my Market Timing / Market Direction call for yesterday indicated I was looking for a rollover in the markets, so it was a judgement call on my part whether I felt that the market would fall back lower.

THREE OVERSOLD INDICATORS – WHEN DO YOU SELL YOUR SPY PUT CONTRACTS

True to a bear market plunge, the rally began to slow and then by the afternoon the selling intensified as the market collapsed lower. There were 3 oversold indicators and I held my SPY PUT contracts until into the third oversold indicator.

This is because the second indicator did not really “fall out of bed” as it were and then when the third indicator also failed to hit the market harder I decided the bottom was perhaps in for the day and I sold my SPY PUT contracts.

SPY PUT - Nov 9 2011 trade

SPY Put trade for Nov 9 2011

 

Normally on a day like today there is a rally attempt into the 3:00 to 3:30 time period as traders buy to close shorted positions, pushing stocks up and then the market often sells into the close. On the move back up to 3 PM, I marked where an investor could have considered buying puts for a move into the close as the ultimate oscillator was getting close to an overbought indicator again. I didn’t do this trade today. If you read my Market Timing / Market Direction guess for today you’ll understand why I didn’t buy spy put contracts on this last rally.

SPY PUT TRADE CONCLUSION FOR NOV 9 2011

I keep posting my SPY PUT trades so other investors can consider looking into possible ways to set up their own Portfolio hedge strategies. While my SPY PUT hedge works well for me, others use RSI (Relative Strength Index) and MACD (Moving Average Convergence / Divergence)  to help in timing entry and exit points for trading the SPY Put. Select this SPY PUT link to read more about the SPYDER ETF history and performance.

I strongly urge investors to consider paper trading for a while to see what strategy works best for them. While I love the SPY PUT, it is by no means the only method for hedging against days like today.

  • prudent investor

    Another perfect day trade then, but as usual posted after the close… Seriously, the record you post on SPY put buying shows 9/10 success and a return of about 600%. Given that all the major investment banks are posting losses for the year from their trading desks despite being aware I suppose of the existence of the MACD, you should really consider opening your own hedge fund… As far as I’m concerned, this is too good to be true and I’ll pass on this strategy.

  • Sorry you feel this way. I realize that lots of people are closed minded and are looking for easy solutions and quick money. But easy money doesn’t exist. If you take the time to review my SPY put trades of the years posted (or all of my trades)you can see that I am wrong lots of times. I cannot offer real time trades. I am an investor first and my investing is what is important to me and pays my bills and my retirement. I put up my articles and trades as examples of what I am doing so others can learn. I would suggest joining the options forum where others as well as myself discuss trades. Sometimes I will mention a trade that I am doing while doing it. Today (Nov 18) for example I mentioned my VISA trade for today while I was doing it, but I am not here to hold your hand. I am in my 80’s, I don’t charge anything for what I post. Investing is risky and my strategies are up here so readers can contemplate what I am doing and devise their own strategies from the ideas I and my friends discuss. If you can’t devise your own strategies from all the articles on my site then perhaps investing is not for you or you might want to consider the literally hundreds of sites where people claim terrific returns and you can pay them a monthly fee. I do note though that even though you are paying a monthly fee, they still indicate clearly that they are not responsible for basically anything. My SPY Put hedge has been in use since late 1993 after I paper traded it. In the early years I was not as successful but it eventually becomes second nature. Take some time and paper trade. You might surprise yourself at how easy it is to do the spy put trade. But remember it isn’t for everyone and I not telling anyone to use it. I am telling readers that the three versions of my spy put hedge are something to think about to devise their own strategy. Give it a try on paper. It took me almost a year of paper trading and then 2 to 3 years of mediocre gains before I ended up with the style I presently use. Honestly though, some days like Nov 9 and yesteday Nov 17 are text book days. There is no way any seasoned investor could miss a market pullback like those two days. Which is why I called it text book. About all I can tell you is paper trade it for a few years. In my opinion this market is going to be difficult for quite some time which should afford you lots of opportunities to learn and perfect your own strategy. Take care and try not to be closed minded. Being open to new ideas is the lifeblood of investing.
    Teddi

  • Exercisejunkie

    Prudent investor? How long have you been investing? I stumbled on Teddi’s site fullyinformed.com in 2008 when she was first posting articles. I spent all of the rest of 2008 and 2009 paper trading her spy put hedge. It’s so simple and it works. Why don’t the big boys use it? Obviously because they have to deal with more than a few thousand dollars. You must not do options. The big boys cannot go in a buy a few million dollars worth of spy puts like Teddi does. They have too much capital. If they did what Teddi does they would move the entire option pricing spread. Wake up! The small investor has so many opportunities that the big boys cannot ever hope to accomplish. I started using Teddi’s spy put in Jan 2010 after I paper traded for a year and a half. This year on using at most 25,000 I have made 71,000. It’s a small amount but it is protection against a bigger loss. I cannot believe investors are so quick to dismiss strategies without reading all the connected articles. Take time to read all 3 parts of her spy put hedge strategy. Then study all her trades in her chart. This site is a goldmine and it’s free!!! Read her article on not real time trading. Your comment is unwarranted in my opinion. Keep writing Teddi… I come every day!!! Prudent investor… maybe stop investing. That could be the most prudent thing you could do.

  • Thanks for your comments ExerciseJunkie. Love the name. Youa re correct that the big boys cannot play our game just due to their sheer size of capital.
    That’s one advantage the retail investor has.
    Teddi

  • Fqardian

    Hello Teddi, I am wondering from where you get your chart? I am trying to follow your set up parameter for Ultimate Oscillator on Option Express, however, the parameter only has Avg 1 Length, Avg 2 Length and Avg 3 Length. I am new to your website, so I apologize if you have answered the same question before. Thank you.

  • I know nothing about Option express. My settings are on the website. Do a search for ultimate oscillator and you will see an image of the settings I use. It is up in numerous locations.
    Teddi