Look For Some Options Plays To Make Money In Today’s Market

| June 19, 2012 | 0 Comments

I have to admit, I’ve been a bit ambivalent about this market.

On one hand, there’s every reason to expect a frustrating period of consolidation to continue.  In other words, the S&P will just keep moving up and down with no conviction.

The reason, short-term momentum on the S&P 500 remains tied to the flurry of global economic conditions.

But on the other hand, I continue to believe that equities remain undervalued and underowned, which is keeping a lid on equity selling. 

Personally, I think companies are secretly sitting on piles of cash.  They have been concentrating on improving their balance sheets despite issuing record amounts of debt.

So, what do we do?

For now, my head tells me to expect the S&P will continue to move along in a tight range with large swings.  

But my gut says we could get a decent rally that no one has priced in… especially if the Fed decides to print more money and guarantee low interest rates indefinitely.

Here’s the thing…

Either way, I would like to help you identify some potential trades for either a sideways or a bullish market.

Don’t forget, these are potential ideas, not outright recommendations.

First off…

JP Morgan (JPM) has just been beaten down from the mid-$40s to the low-$30s.  In theory, this has made this banking behemoth very attractive… even if you factor in the $2 billion credit loss.

The fact is, in a few months, people will forget all about that minor blemish and regret not buying one of the best banks in the country far below book value.

Better yet, put options are also trading at a premium compared to call options.  What this means is that the market remains worried.

If you agree with this, you can exploit this discrepancy by selling put options and collecting elevated premium.  If put selling is not your style, you can by also buy some calls with depressed premiums. 

Either way, it’s a win-win!

Now wait… We’re not done.

Let’s take a quick look at Yahoo (YHOO).  This tech giant is lumbering into a bullish setup as its 200-day moving average is beginning to ascend. In other words, as the 200-day moving average moves higher, the more likely the stock will follow suit. 

To this point, Yahoo has outperformed the broader market in the last three months. And believe it or not, this is something it hasn’t done in years.

I think this is due to the fact there’s a lot of moving pieces in this name as it unloads shares in Alibaba and looks for a new CEO.  

But the relative strength is the main consideration in my book.

It could be the sign of good things to come, and YHOO could easily see $17 a share real soon. 

Again, inexpensive call options can be used to accomplish participating in YHOO’s upside, while limiting your risk!

Bottom line…

Here’s the way to think about it.  If you believe the market is going to move higher, use option contracts to participate in an uptrend. 

If you believe the market is in consolidation mode or this is a false rally, the same advice as above still applies.  Use options to participate.  And in case you’re wrong, you’re still able to limit risk.

Safe Trading,

Marcus Haber

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Category: Stock Options Trading

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.