HOW TO TRADE A SIDEWAYS TREND

With the market chopping sideways over the last few weeks, it can get frustrating when you buy call or puts and the stock doesn't move very much. One way to deal with a sideways trend is to use spreads. I teach several spread trades in the Advanced Options Strategies course (Course 2). A bullish credit spread (set up below a support area) would allow you to be profitable if the stock went up, moved sideways, or even moved down a little. That is a 2.5 out of 3 chance of making money! You do need to be careful since the reward to risk can be negative. You need to know how to make adjustments if the trade goes against you. My favorite credit spread is the Bull Put Spread. I really like this spread in these current market conditions. If we do chop sideways or move up a bit in the next few weeks, these trades should work very well. The profit percentage is lower than a directional option trade (about 20% to 30%), but with a sideways trend it can give you a better chance to make money. Some stocks I like for Bull Put Spreads include HPQ, CSCO, CAT, RIMM, and EOG. For Bear Call Spreads, I like HANS, BAC, and C. More than 42,000 January $23 Call options were purchased today on the UUP. This suggests that there is speculation that the dollar could continue to rise through January. There is no way to tell for sure if these call options were bought or sold. Shorting that many calls would be very dangerous. It is more likely that they have been purchased on a directional bet that the dollar will go up...or that they have been bought to protect a short position. Either way, it signals a bullish view on the dollar. This could cause gold and other commodities (like oil) to continue to sell off over the next few weeks. However...today's price action on gold (gap down followed by a rally) suggests that it could rally a bit in the next day or two. If it does, it would allow you to set up your put option trades on some of the gold stocks or ETF's.