Many novice options trading investors fall into the trap of jumping from one strategy to another — a rabbit-like approach we can call Strategy Hopping. These traders inhibit their performance and diminish their ability to achieve consistent results by being too quick to try one strategy after another. The old phrase, “if it ain’t broke, don’t fix it” has relevance here. If you are trading a strategy that is working well in the current environment consider sticking with it until we see some type of shift in market conditions.

In the last three weeks every market rally has been sold into since the lower-swing high formed in the S&P 500 Index Options (CBOE: SPX) on May 10. That means we have formed a series of lower or equal swing highs. These multi-day bounces have simply setup low-risk, high-reward entry points for bearish plays.

One of my strategies of choice in this environment– mentioned in the recent posts Bear Threatens to Claw SPY and Bears Maintain Their Foothold in SPY — is the bear call spread in the SPDR S&P 500 ETF (NYSE: SPY). This call vertical spread consists of selling a lower strike call and buying a higher strike call in the same expiration month.

While I’m not a fan of chasing bearish trades after a huge down move like yesterday, I do think traders could use any type of bounce in the coming days as an opportunity to enter July Bear Call Spreads. The strike prices I select will depend on the size of the bounce, but right now I’m eyeing the SPY July 137 — 140 Spread. Check the option chains for current prices.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions in SPY.

Follow Tyler Craig on Twitter@TylersTrading.