Traders, your mission this week, if you chose to accept it, involves potentially obscene profits from buying puts. S&P 500 futures have provided a road map showing us that now, while the index is approaching upside areas of resistance, is an ideal time to establish short-side positions.
But the clock is ticking as this week may offer a final short-term put-buying window before the next major leg down.
Should you accept this covert mission of put buying on the market’s countertrend bounce higher, it’s important to understand that higher prices are to be embraced. With the CBOE Volatility Index (CBOE:VIX) at new 2012 highs, the market makers are expecting a drop, too, and have raised put options premiums. This means you may have to commit some extra capital to open bearish put trades. But remember: Stocks that have already dropped can always go lower.
I expect this countertrend move, which could happen either in time or price, should last about five to nine trading days with some sectors bouncing higher than others. The higher they climb, the harder they fall. So, in particular I’m targeting names in the biotech and pharma, big equipment and niche technology sectors.
But individual stocks are setting up to get whacked, too. Check out the charts for Dillard’s (NYSE:DDS), Dunkin’ Brands Group (NASDAQ:DNKN) and Union Pacific (NYSE:UNP) for some truly ugly signals. These names are ripe for bearish put trades.
For options trading, you may want to check out some of these put trades:
- Everest Re Group (NYSE:RE) Oct 80 puts
- Concur Technologies (NASDAQ:CNQR) Aug 50 puts
- iShares Dow Jones US Real Estate ETF (NYSE:IYR) July 59 puts
I just gave my Parabolic Options traders 15 new put recommendations. To get the full details of each trade, including entry instructions, join us at Parabolic Options.
As the S&P 500 futures drop to the 1,209 level, use that as your signal to lock in obscene profits on put trades you initiate this week.
This message won’t self destruct in five seconds … but the market just might!