SPY PUT Trade With Confidence In Market Direction

The great thing about using market timing technical indicators after years of use brings with it a certain knowledge derived from experience. My market timing technical indicators yesterday indicated further selling. Indeed the Fast Stochastic showed “down” period. Slow Stochastic also indicated lower but not to the degree of the Fast Stochastic. MACD (Moving Average Convergence / Divergence) on the other hand, gave a market down signal on all three stock markets on September 25 and 26 and has never wavered since.

An investor who had bought the DXD on September 26 would have paid $46.96 at the close and today is was trading for $50.85 for a 8.2% return. In my case though I prefer the SPY PUT trade. Today’s trade in the SPY PUT in indicative of trading when I am confident in market direction.

After reviewing the charts for all 3 indexes after the close yesterday it was obvious to me that the next move would be lower. I expected a bounce and as per my article last night, any bounce would mean a chance to buy market puts. The SPY PUT is my favorite market direction trade. (SPY is the SPDR 500 ETF)

SPY PUT Trade for Nov 8 – S&P 500 1 minute Chart

At 9:44 the S&P rally was starting to already end. The Ultimate Oscillator settings I use to spot extreme oversold and overbought signals are in the chart below. Some people noted that they are unable to adjust the Factors in their own charting tools. The factors are primarily like a smoothing agent. If you cannot adjust them, then check to see if your chart on the S&P 500 for today (Nov 8 2012) looks like mine. In all probability it will as I am using default smoothing factors. My period factors though are not default but unique to this trade.

Ultimate Oscillator Settings

Ultimate Oscillator Settings

The S&P 1 minute chart is below. I opened it first thing in the morning and looked for an overbought indicator. I had expected a bounce after such a big drop the day before. No such rally emerged though and within 15 minutes I had bought my Spy Put Contracts for the day. Today I bought 100 spy put contracts which is the largest quantity I ever buy and shows the confidence I had in the market direction signal being down. It was obvious to me reviewing the market direction at the close yesterday that the move lower would continue which is why I put out the Raise Cash post after the market close yesterday.

Spy Put Nov 8 2012

S&P 500 chart for Nov 8 2012

After buying my SPY PUT contracts I then changed the S&P chart to 5 minutes as I did not want to get shaken out of my position too early.

SPY PUT Trade for Nov 8 – S&P 500 5 minute Chart

The 5 minute chart assists by pinpointing the oversold signals less frequently allowing me to stay in the trade longer. You can see in the one minute chart above there are many oversold indicators throughout the day. In the 5 minute chart below there are only 5. This makes it a lot easier to pick when to sell my puts when I have confidence in the market direction being down.

I ignored the 1st oversold indicator because it was too soon after buying the spy puts and the S&P 500 had not fallen very much. I almost sold my Spy Puts Options with the 2ND oversold signal. The S&P had fallen fairly significantly by then and selling at the 2nd oversold signal would have been a fine trade. However I thought there would be more downside going into the close so I held until the close. I sold though, just about 5 minutes or so before the close and missed the drop right near the end. This drop happened on both the S&P and the Dow.

spy put trade oversold

Oversold indicators on the S&P 500 for the SPY Put Trade

Spy Put Trade Summary

Today’s trade is indicative of what is possible when I have confidence in the Market Direction. After yesterday’s market close I was confident today’s market direction would allow me to have an exceptional Spy Put Trade.  This kind of confidence is also what makes it easy to buy more than the usual quantity of Spy Put Option contracts.


Internal References

Listing Of SPY PUT Trade Articles

2012 SPY PUT Trades Listing

2011 SPY PUT Trades Listing

2010 SPY PUT Trades Listing

Articles Discussing The Ultimate Oscillator

Other Articles On Trading Options

Understanding SPY PUT Hedge Strategy Part 1
(When I Can Watch The Market During The Day)
Understanding SPY PUT Hedge Strategy Part 2
(When I Am Unable To Watch The Market)
Understanding SPY PUT Hedge Strategy Part 3
(Short version using only ultimate oscillator)

External References

SPY PUT Option Chain
SPY ETF Home Page From State Street Global Advisors (SPDR