SUCKERS RALLY

Today's move is exactly what I wanted to set up some put option trades on the SPY and DIA. I also set up a bearish trade on the RUT (Russell 2000). For those that are worried about getting into a counter trend trade, stay in cash for the next few days. Look at an intraday chart on the SPY. Notice the choppy and rising price behavior. This looks to be setting up for another move down. I like to buy puts on these types of rallies because the options aren't usually inflated from the fear that is usually generated from a move down. I took smaller positions because of the whipsaw nature of the market over the last few trading days. I'm not using a stop on these trades. Instead, I used my money management. Here is an example. Let's say that you planned to buy 4 contracts of an option at $2.50. Your total cost would be around $1,000. Now let's say that you planned on using a 50% stop. This would mean that you would stop yourself out of the trade at $1.25. That would represent a $500 loss. If you were willing to lose $500 on the trade, why not just buy $500 worth of the option and not use a stop? So in this example, I might just buy 2 contracts instead of 4 and not use a stop loss. This is what I did on some of these trades today. I feel that over the next few days (or maybe even weeks), we could move lower. However, we could also have some whipsaw days like we saw last week. By not using a stop, I would protect myself from getting stopped out on a whipsaw day...only to see the market continue to move lower. At the same time, if I am wrong about the downturn of the market, I won't lose very much money because I have already defined my risk.